Jack Altman & Miles Grimshaw - Building and Investing in Lattice - [Invest Like the Best, EP.345]

My guests today are Jack Altman and Miles Grimshaw. Jack is the co-founder and CEO of Lattice, an HR software platform. Miles is a General Partner at Benchmark, an early investor and Board Director at Lattice, as well as a former guest on Invest Like the Best. Jack started Lattice in 2015 and has scaled it into a multi-billion-dollar business that already serves over 5,000 organizations. In our discussion, we look at all aspects of building and scaling a software product from both an investor and operator’s perspective, which made this particularly fun to do. Please enjoy my conversation with Jack Altman and Miles Grimshaw. Listen to Founders Podcast For the full show notes, transcript, and links to mentioned content, check out the episode page here. ----- This episode is brought to you by Tegus, the modern research platform for leading investors. Stretch your research budget with flexible expert calls you can trust. At a fraction of the cost of traditional expert networks, Tegus customers pay only what an expert charges – with zero markups and no confusing call credits – netting an average 70% savings. Don’t want to conduct a full hour call? Tegus offers the ability to schedule 30-minutes, an offer you won’t find anywhere else. And they don’t stop there. With white-glove custom sourcing for every project and robust compliance measures, including a dedicated 50+ analyst team that vets every call transcript, Tegus ensures your privacy and protection. As the industry innovator for qualitative insights, Tegus helps you find the right experts you need at a quality and speed that can’t be matched. For a limited time, as a listener, you can trial Tegus for free by visiting tegus.co/patrick. ----- Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes. Past guests include Tobi Lutke, Kevin Systrom, Mike Krieger, John Collison, Kat Cole, Marc Andreessen, Matthew Ball, Bill Gurley, Anu Hariharan, Ben Thompson, and many more. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @patrick_oshag | @JoinColossus Show Notes (00:02:55) - (First question) - How Jack & Miles met at Y Combinator in 2015 (00:04:22) - Lattice found a niche in mid-market HR software (00:07:55) - Discovering Lattice's true market need (00:11:14) - Fear of stalling drove the need for business growth beyond initial product (00:12:06) - Deciding on multi-product focus over up-market expansion (00:17:01) - Prioritizing quality of usage over frequency for customer health scores (00:20:06) - Balancing customer health scores and actual needs (00:24:31) - Prioritized community by spotlighting HR voices (00:28:20) - Building community helps companies sell a vision or lifestyle (00:31:05) - Cultivating broad awareness instead of hard-selling (00:35:33) - Overcoming the culture of 'perfection’ (00:37:22) - Flywheel effect makes suites efficient: lower go-to-market costs, more focus on product (00:41:06) - The challenges of juggling current needs and future demands (00:46:27) - Navigating disagreements and trust-building within a company (00:50:36) - Investors' roles extend beyond founders, focusing on their own goals and interests (00:51:52) - How transparency eases the founder-investor dance (00:55:16) - The changing employer-employee relationship (00:58:37) - Navigating growth from startup to public equity (01:05:43) - Lattice's ultimate aspiration (01:07:42) - Evaluating founders' authenticity (01:11:18) - What Jack & Miles are most embarrassed about, the most proud of, and the most excited for (01:14:30) - The kindest thing anyone has ever done for Jack and Miles

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

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• 0:35Patrick O'Shaughnessy?

  Hello and welcome, everyone. I'm Patrick O'Neal and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts and you can access all our podcasts, including edited transcripts, show notes and other resources to keep learning at joincolossus.com.

• 1:00Speaker 01

  Patrick O'Neal is the CEO and founding partner of Positive Sum and the CEO of O'Neal Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum or O'Neal Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum or O'Neal Asset Management may maintain positions in the securities discussed in this podcast.

• 1:32Patrick O'Shaughnessy?

  My guests today are Jack Altman and Miles Grimshaw. Jack is the co-founder and CEO of Lattice, an HR software platform. Miles is a general partner at Benchmark, an early investor and board director at Lattice, as well as a former guest on the show. Jack started Lattice in 2015 and has scaled it to a multi-billion dollar business that already serves over 5,000 organizations. In our discussion, we look at all aspects of building and scaling a software business from both an investor and operator's perspective, which made this particularly fun to do. Please enjoy my conversation with Jack Altman and Miles Grimshaw.

• 2:08Patrick O'Shaughnessy?

  I would love to know when and where you guys first met because this is experimental format. I've never done a conversation with a very early investor and founder in a company that's grown to this scale that had been together since the beginning. So hearing about how and where you met would actually be quite interesting.

• 2:22Speaker 02

  It was 2015, I guess. It was in the middle of YC, which is like frenzy time as a founder, where you're meeting a gajillion investors and all these things. But I actually remember then, and I said this to you, I think even at the time or years later, but like I didn't want to say at the time because it was kind of overly flattering, but I was 26 at the time. You must have been 25. And just talking to him and the depth at that age, and I was young too, but I was like, oh, this is such a young guy. And he is talking at such depth about the business. And I was at a part of my journey where I was just consuming every podcast and blog and whatever. And I was actually very deep on listening to Bill Gurley at the time. And I was like, Miles is going to be a future Bill Gurley. And now here we are at Benchmark. But I remember just even in the midst of like this crazy YC thing,

• 3:05Speaker 02

  Miles at the time was just so much deeper and forward thinking versus just what's the deal? What's the terms? What's the traction? He was really thinking about it in a different way.

• 3:13Patrick O'Shaughnessy?

  Why were you interested in business in the first place?

• 3:16Speaker 02

  Going all the way back, I don't know. But when I first came into tech, I moved out to California in, I guess, 2013 to join this e-commerce company called Teespring at the time. And I just got there and I was immediately obsessed. I was a big video gamer as a kid, and it's just like this adult video game. That's always how I've felt about it.

• 3:35Patrick O'Shaughnessy?

  Do you have, through all this, and I know you do a lot of investing too, which kind of makes you unique, a set of deeply held beliefs about business, like what makes for good business?

• 3:42Speaker 02

  If there's one view of mine that has somewhat changed, I think, Miles, you probably share this. I've probably come to more belief than I used to that the market is the dominant variable in the whole equation. There are always moves you can make. You can take your product from wherever you start to something adjacent. And I think that's like something we've talked about a lot in the context of Lattice because we've made all these moves. But the more time I've spent, the more I just think great markets are a dominant variable in a lot of these equations. And just being in a space where there's good blue ocean, where there's depth to the market, where there's a change in the market, those factors Just beat out so many other things.

• 4:19Patrick O'Shaughnessy?

  What's a good example of that felt sense of that, whether that's with Lattice or a company you invested in? There's this great Jensen Huang line that he likes zero billion dollar markets better than 10 billion dollar markets because the market will grow and then it's a great same thing, but he prefer it not be a thing to start. Put like a little bit more flesh on the observation.

• 4:36Speaker 02

  Lattice is an example that's just easy to speak to for me. There has always been huge category for HR software. Every company needs some set of some HR tools. And so then it's like Lattice comes onto the scene in 2016. Why is there any right to exist? People have been doing performance.

• 4:51Patrick O'Shaughnessy?

  Dave Duffield solved this already.

• 4:53Speaker 02

  Yeah, exactly. It's been done twice, once on prem, once in the cloud. What are we doing here? We're done. Yeah, we're done. Until AI. Exactly. And then it saved us all. We had this moment in 2016 where there was a zero billion dollar market, but it was subtle, but it was very real, which was that HR teams wanted to do performance management differently. And just the sentiment of what the best practice was for talent management just changed. And basically, performance reviews, people were so sick of them by 2012. Everybody just stopped doing them. There was just like this revolt against performance reviews. You see all these big companies like Goldman and Adobe and a bunch were just like, we're not going to do anything. People then realized that that's chaos and doesn't work. And then people were like, oh, there's actually this other way.

• 5:35Speaker 02

  But it was like a small, early group of HR practitioners who were championing this new format, which is what Lattice was built for. And we served that and there was some luck to it, but it just grew and that became the real default.

• 5:47Speaker 03

  Small markets growing. I think about that a lot when investing. And that's actually what I personally thought when we first started partnering was the mid-market was sort of sneaky big and was far less served with software than we might imagine. It was everyone that moved to the cloud, obviously from on-prem solutions. You had really good top-down sold software, right? So you had Workday, right? 2004 something company, but it's like for big companies for the function. And then you had like dinky point solutions. If you were a tiny team, you technically needed to do something, but not robustly. And as you looked at a bunch of these categories, there was not really anything good for. Fifty to two thousand, like if you weren't going to be at Workday or NetSuite or whatever,

• 6:31Speaker 03

  like you didn't really have anything amazing. So I think that you want the small markets that are growing in part because you can't chew off that much as a startup anyway. And so better you chew off all of a small piece, retain the customers than more of the next piece that unlocks each year. And by the time the market looks big, you've got a lot of it, hopefully. In this case, the opportunity for mid-market for fifty to two thousand, let's call it person companies, to say, we're not sophisticated enough to need the dominant market adult solution. It's a serious need. That was a spot in some sense, you know, Brex did that in finance and Ramp and should have done it in more places.

• 7:08Patrick O'Shaughnessy?

  How did you first come across this group of people that wanted to do this thing in a certain way? Was this an idea you had and then you went searching for people that agreed? Or was this like an idea that came from conversations? And if so, like, why were you having those conversations in the first place?

• 7:22Speaker 02

  Yeah, it came from building the wrong product first, thereby building relationships and getting in deep with these customers who then told us about this other problem. So we built this like, OK, our software tool, which is what we first hypothesized was going to be a big need, which turns out is a big problem. Software is just not a great solution to that problem. So it goes. But we became close to a bunch of users who were trying to make that work with us. And then we sort of learned about it through that.

• 7:47Patrick O'Shaughnessy?

  Is there a most important or memorable single conversation that you had at that stage of the business that stands out in your memory?

• 7:54Speaker 02

  Yeah, there is actually. We had this customer where the CEO of the company, it wasn't a huge company, it was probably a hundred person company. CEO was a friend. The CEO was helping lead us down this wrong path of OKRs and saying, we really need to do this. I got to get my company aligned around goals. This is how we're just going to like operate the whole business. And then I was in implementation work on the thing with his HR person. And I could just feel that she was just, this is hard. People don't want to do it. I'm not sure it's really going to work. We'll give it a try because our CEO said so. But really, if you had this performance review thing, I would pay you right now if you could just give it to me Monday. We need to launch this. It's chaos. The system we're using isn't great. And I just need something. And we were Like, wait, you would pay like what?

• 8:38Speaker 02

  And she was like, it doesn't matter. We need the thing. And nobody to that point was willing to pay us for anything. They would use the product. They would try it. Maybe they would do a month to month thing, but it was hard. It was like pulling teeth. And then here we had this person saying, if you built this other thing for us, we'll pay you annual upfront kind of thing. And so that to me was the signal, which has actually come to be one of my beliefs about companies is that going to market with products is how you find product market fit. It's not you build this, in most cases, you don't tinker, build the product and then go find product market fit. It's the act of going to market. That's what helps you see what people actually want.

• 9:12Patrick O'Shaughnessy?

  The very first version of the software that someone paid you money for, what did it do?

• 9:17Speaker 02

  All it did was a 360 lightweight performance review. That was really all, and it was super configurable and it let you have your peers. It let you do a thing where you could have your peers or other people throughout the company give you feedback and you could manage that. As opposed to like just a manager giving you feedback. And this was in contrast to these tools where it was really just this hierarchical performance review that was designed to be really heavy. That required being connected to goals and had ratings and it just had this old structure. Versus here we were with this thing that felt closer to just a feedback snapshot where the three of us sitting at this table here could go into the product, set it up, go through the whole thing and be done in like 10 minutes.

• 10:01Speaker 02

  That just wasn't possible in the old system. So it was just delight.

• 10:04Speaker 03

  Kind of worked.

• 10:06Speaker 02

  It kind of worked.

• 10:07Speaker 03

  I think it took us to three of revenue, give or take. And then was linear. And then again, to the point of like active being in market is the way to reform strategy and develop a plan. Over the next two years was when you said, it won't be a single thing, obviously. It's not meaty enough.

• 10:27Patrick O'Shaughnessy?

  Was that just a result of, oh, this is going to be three million bucks and it's not going to be a huge outcome. So we need to start solving for business growth. That was the driving reason for that.

• 10:36Speaker 02

  We talked about this a lot early, but one of the things that I found to be the scariest idea of all with starting a company, because starting a company is scary in a lot of ways, but almost more than just outright failing, the idea of getting to a medium situation and then stalling, that to me was scarier almost, where you had something going, but like it wasn't ever going to get you there. And I had this, just like a sense, this was partially from customers, although customers were coming in and they were liking us, but like Miles said, it went linear at some point and a few million of AR, still adding, but the second order was not exciting. It seemed by the market's shape, even that that product alone, single product like that for the mid-market, it was too hard to believe that that would carry us when you ran the math on it.

• 11:19Patrick O'Shaughnessy?

  What were the discussions like, maybe even between the two of you, as you conceptualized the strategy from there? So, okay, we've got this nice start, but linear growth, we need to do more, what should we do? What were those discussions? Most of the time, these big successes do have the first product run for a really long time before the second wave is relevant. And so it's kind of cool that it happened very early for Lattice. So what were the debates like? Like, what were the trade-offs you were considering?

• 11:44Speaker 03

  My push at the time was, in some sense, what has become a Lattice value, Jack and I share this in life in some ways, is like, what's next? And so, we were partnered, there's nothing but what's next, let's figure it out. To try and create clarity there, forcing the trade-off of the question at the time of, are we going to go up-market with this thing? And we're going to be a product-centric company with this thing? Or are we going to, which was a natural, obvious thing, right? You build this, now bring it to the rest of the market, take it up-market. Or are we going to be defined by a customer segment and ask, what's next for that customer segment? What else do they need? What else will, oriented in that way, helping employees, helping companies succeed with employee success? What would be next against that mission? And define ourselves more by a customer segment

• 12:29Speaker 03

  and then building for them versus a product we have and trying to bring it to the most number of people with that. And we spent probably a good like six, 12 months.

• 12:40Speaker 03

  Prodding at that, we need to pick and we should pick and make it clear. And one thing I think about strategy is I really don't believe there's any strategy that can't be authentic to a founder's strengths and energy. And I kind of imagined the idea of us going up market and trying to sell performance management alongside Workday. And I was like, I don't think Jack's gonna enjoy that. I don't think it actually is a strength. Like, I think his strength is building product and brand and marketing and sort of creating movement around it. You could see the touches of that. Even at that point, we could talk about the community side of things. But like, that was the strength. And that was, I think, what you'd tell you really derived energy from. Sort of my strong inclination and encouragement. It seemed counterintuitive.

• 13:24Speaker 03

  Most people would say, hey, take the thing you got and try and get as much money from it, drive ACVs up as much as possible. And this was to say, no, let's take all our engineers and do the next thing. But the idea that you could build a set of multiproducts in the market felt like a hard, but with a great product mind, an open frontier.

• 13:43Speaker 02

  One thing Miles has said different versions of over time, but even from early days, when we were like tiny and this sounded impossible, is he'd be like, if you want the company to really matter, at some point, you need to be at 100 million of ARR, growing 50%. And saying that to a founder with 2 million of ARR is terrifying because you're like, wait a second, we're adding 130K of ARR a month. I can't even visualize at all what you're talking about. But it sort of helps you highlight that even when you're small, you're like, we need some plan to get to some market that even makes that possible. And I think having that kind of orientation, not before your pre-launch, because then that would be sort of distorting. But once you're in-market, thinking just along the lines, numbers aside of this has

• 14:27Speaker 02

  to be in some swim lane that can be huge at some point. And so what's our path gonna look like there? I think that's really clarifying to say, in our case, either you're gonna have to make it so that every company in the world can use this, which means you then take, what does that imply? It implies going enterprise and doing these things that Miles was just talking about, where you're gonna sell this to Honda and you visualize that experience. Or you're gonna need to build way more stuff for a smaller customer segment. And so it was almost an obvious thing early that one or the other had to be true. And then the prod that you just said, we just did it earlier than what's typical.

• 15:03Speaker 03

  You made the crazy call when it was like seven engineers.

• 15:06Speaker 02

  Yeah, we had seven engineers and we had a couple million of ARR. And we put five of the seven on this second product and it took us nine months.

• 15:15Patrick O'Shaughnessy?

  How did you decide what the second product would be? Like literally, what were the tactical engagements with that customer segment that made you confident that you should pick this thing versus the second best option or something?

• 15:26Speaker 02

  At that point in time, one of the things that we did, I did, that was unbelievably helpful was I would do probably two or three dinners with customers per week. Like I was just talking to customers constantly.

• 15:41Speaker 03

  Which you'd never know as someone who was never an HR leader. But I always think it's interesting, the question of how many customer cellphone numbers does the CEO have probably? And I was always really surprised by the number of HR leaders Jack would be on text with.

• 15:57Speaker 02

  Friends with them and loved them, got to a place where I definitely, and I still do consider some like real friends, only that I met in the context of Lattice. There's lots of ways to do it, but there has to be some source of passion. And for me, especially in those early days, getting to a place where you really love the customer as much as you care about your employees even, getting to that place was really important. But at those dinners, or even just in talking to them at any time, it was so obvious. We would have these prompt questions go around. What are the tools you're using? What's most important to you? What practices have been most important for you? And obviously, people would always be generous and say, oh, Lattice is great, you know, like they're there. But it almost in some ways felt even more passionate to the customer was these engagement surveys. And customers were talking about the fact that they had finally gotten by and after

• 16:40Speaker 02

  all this time to buy these engagement survey products and that they could now listen to their employees in these detailed ways. And they would run twice a year engagement surveys with 50 questions. And there was some science behind it, but really it was just these surveys. And they described it as though they were like driving a car and they had just wiped all the mud off the windshield. And they're like, I can finally see I've got these action plans. I can communicate to the rest of my exec team what's important. I can follow up with employees. I can see where there's smoke and go look for the fire. And they were just raving about just the ability to do that. You open up what's in that product and you're like, well, it's not. That complicated of a product. And maybe more importantly, it's the exact same buyer as Lattice's current performance management product.

• 17:24Speaker 02

  And they're even coming to it from the same spirit, which is this employee centric mindset. And so we were like, well, this is going to be an easy go to market. If we can do it, it's not that hard of a product to build. People are raving. Let's go.

• 17:34Patrick O'Shaughnessy?

  How do you both think about the frequency of use as an important metric for a product? Because in these two examples, one's once a year, one's twice a year. The frequency of use seems kind of low. Normally, I would say you want really high frequency of use and engagement with a software product, but the database it's creating is certainly valuable and gets more valuable over time. Is that a variable that you think matters in general? Or is it just depends on the company?

• 17:58Speaker 02

  We had so many internal debates about this because, like you said, these products are designed to be used quarterly at maximum. We did build some products on top, some smaller products that have daily or weekly use, things like feedback and one on ones and whatever else. But like you said, this is not something that for the most part, people are using all the time. And so we had different theses in the company of some people saying, the more people use it, the better it's going to be. And others saying, really, it doesn't matter as long as the customer sort of expresses that they're content, that should be all that matters. What we ended up doing over time was building these customer health scores, which were started as just a hypothesis where we would say, here's the usage. We think it's going to lead to healthy A, B, C health scores.

• 18:43Speaker 02

  And then we would refine it quarter by quarter as we saw the retention come back. We've now gotten to a point where our predictability on like an A health score by usage and a D or an F is extremely predictive. And it's not just more usage is better, but it is certain kinds of usage are better. So in fact, some of our F health score customers are using it constantly and they're just using it. If you open it up, it turns out that they're using it in weird ways or using it wrong. But so this sort of process of creating a customer health score based on usage and refining it quarter after quarter has been super important to us to understanding retention.

• 19:19Patrick O'Shaughnessy?

  How do you prevent the tail wagging the dog so that you start optimizing this customer health score instead of customer needs?

• 19:25Speaker 02

  For me, I'm a big Believer in the dog and the tail matter equally in some ways. And you actually want to hold that tension where you've got some sort of top down, longer term vision that you're driving towards. And then there's the reality of what's in market right now and what the people on your front lines in the company are saying, but customers are demanding this from us. And so that creates a strong voice of the customer based on what you have in the market today. And then you have this strategic direction and that combo intention, I think, is actually really healthy.

• 19:53Speaker 03

  I think about it more from all things being equal, more frequent, better, but not all things are ever equal. And so what should be the nature of adoption for success with the problem of solving? That's what we should make sure is successful. And some products aren't as frequent. If we tried to push everyone to do performance reviews weekly, like probably hate us. My partner Sarah has prided my awareness more so of this. I have probably like 5,000 notifications on my phone. I ignore red dots. They don't mean anything to me. It's as if they don't exist, which my wife laughs at me for. And so I don't notice sort of many push notifications from apps. But my partner Sarah has like made me more aware of thirsty apps where they're using the push

• 20:35Speaker 03

  to like try and drive a DAU metric that they probably are using for a fundraiser at some point in time. I'm sure we've all gone on that snap notification not long before the end of a quarter and wondered that question. I think a team should say, what's success really look like for our products? We've talked a lot about that being at least biannual kind of performance reviews. And then you still need to be sticky, need to be the best choice for it all. You need to be sticky. And so what was crazy that sort of is background context to this at the time when Lattice got started, there were two companies that really did performance reviews and engagement way bigger than we were in either of them, singularly with Reflective, which by the time we'd only raised 15 million, they'd raised 100 million. I think ultimately sold for like seven, $10 million or something.

• 21:18Speaker 03

  And then Coltramp really created the engagement survey category. But again, to this pick the customer segment and be really product, have the strategy of building out many products and making that a more cohesive and more interesting and compelling experience to the buyer. We were the first to actually just build both from scratch on our. Architecture, others are quiet in to start cobbling together. That created a more compelling bio experience and then you've got to be retentive. So I think if you have infrequent products that didn't have gravity to the day that was getting created, right? We talked a bit about the idea of half-life in the system. You might actually think that, take other HR category ATSs, they're more frequent. You do use them every day that you're doing the recruiting process, obviously. But the half-life in that data is like a recruiting cycle.

• 22:03Speaker 03

  Really big companies obviously do more for it over a longer period of time. Whereas engagement surveys, you actually are comparing over the course of 18, 24 months. And by the way, you can't get the data out because it's anonymized and so it's really sticky. And then on your own performance reviews, every employee wants to look back over the arc of a couple of year period. And so if you ever were to try and move, you've got actual data migration problems. Whereas usually with some other categories, they could be more frequent, but the data half-life is so sure that if you want to go spin up the other system, you can spin it up and in three months, all your data will be there, even if you never copied any of it over. And so I really think about it being, what should we be? And the sort of genes of long-term stickiness. Do we ever say, what should we do next on the basis of frequency? Because obviously we have many products now.

• 22:47Speaker 02

  No, not really. But to your point, what this is sort of making me recall is we did say, if a lot of these products are twice a year products, which are ones that after engagement were as well, things like compensation cycles, things like managing an employee's sort of like performance and career tracks. All these things were biannual, but do end up building a journey throughout the year where I might still have eight company level moments and they connect to each other. And so the performance review flows into a calibration cycle, flows into promotions, flows into compensation. You run an engagement to see how people are feeling. And so you do end up building like a tapestry of end employee's journey. To Miles's point about genes, we were thinking, what does this sort of stack need most next?

• 23:29Speaker 02

  And what does our customer using this current stack want from us most next? And then given that constraint, we would then think about the usage.

• 23:37Speaker 03

  And now we're launching the everyday tool in many ways, the HRIS.

• 23:41Speaker 02

  We're going to launch this big thing on September 19th.

• 23:44Patrick O'Shaughnessy?

  There's a couple of threads I want to pull on in these early days. I just love these like early DNA setting decisions and strategies, et cetera. There's two that I don't want to lose track of. The first is community, which Miles said is a natural inclination or an energy giving aspect for you, Jack. And then the other is this knowing when to put the gas on a product, knowing when you have sufficient product market fit, or whatever you want to call it, that it's time to like really go and accelerate. And I guess that dovetails with community quite nicely. So what were you doing on the community side? How early were you thinking about this? What was your intention and what did you do? And why was it effective?

• 24:20Speaker 02

  We were probably crazy early on the community and marketing side on a relative basis.

• 24:26Speaker 03

  And to be clear, I would say if you looked at it economically, so if you looked at where dollars of marketing budget went even the early years, it would be 90% at that time, brand, community versus say, performance, marketing or sales list leads or something else, just to paint these economic, obviously not a big number when you're early.

• 24:45Speaker 02

  And even that 10% that we would spend on Facebook ads or whatever was join our community. So we weren't even trying to say, I mean, we would experiment with like, hey, here's Lattice, book a demo. But in our minds, that just like didn't make sense as a user journey. Maybe today we could maybe do that. But at the time, you don't know what Lattice is. You're maybe not even bought in on this kind of performance management yet. So to take somebody from, I'm just learning about Lattice on this social network or in this Google ad for the first time, I've never seen this company before, to I'm gonna book a 30 minute demo to see the product, that just like didn't compute for us. And so instead, what we would do is we would have these touchpoints where we were evangelizing this new way of employee management.

• 25:31Speaker 02

  And the way we evangelized it, because we had come to it in 2016 instead of 2014, when nobody was thinking this way. But in 2016, there were these practitioners who were already really sharing the gospel of there's a new way to do employee management and here's what it looks like. And at the time, we had no HR experience. We were young and inexperienced. And so what we would do- Is we would just spotlight them. And so the way that we got started with the content in the community was basically taking these CHROs and even COO, like other people outside of HR would care a lot about this too. But we would take these HR leaders and we would do these really high quality video interviews with them or blogs or find ways to basically take their voice and amplify it

• 26:15Speaker 02

  in really high quality ways that nobody was doing. And that let us make champions out of these people who are already preaching this thing. So our view was rather than us trying to be sort of the cult leaders of a community, we just want to put out an umbrella under which this community was gathering. And that was always the way we thought about it.

• 26:34Speaker 03

  You use a nice phrase for it. What is it? Hold the umbrella, but don't hold the microphone.

• 26:38Speaker 02

  And I think that was really important for us to not be the ones taking the spotlight, but creating this space for this underheard, under-listened to customer. That's also where the real relationships and friendships come in was I got to a point where I even felt frustrated for them. That I was like, they have these important ideas and their exec teams and CEOs aren't listening to them. That was a fuel for it.

• 26:59Speaker 03

  You followed it through with, there was a Slack community early on, you did a book, big conference.

• 27:05Patrick O'Shaughnessy?

  You wrote a book?

• 27:06Speaker 02

  Yeah, we wrote a book that was all about sort of this new way of doing people management. And it was taking all these ideas together. That was a few years later, but even in the early days, like Miles was mentioning, we made this big Slack community where we got thousands and thousands of HR people in this place because there just weren't enough homes for it. And so between that and throwing events and these big conferences and dinners, a lot of it was just giving a venue and attention and a space for people who weren't getting as much as they deserved.

• 27:33Patrick O'Shaughnessy?

  Have you heard of this company, Workweek, that's trying to do this in like a horizontal way? They pick an underserved vertical, let's say like hospital administrators is one that comes to mind. There's no great content vertical for a hospital administrator. Build a big newsletter, then build a product, then build SaaS. They're doing a lot at once, so we'll see what happens, but you were doing this 10 years ago.

• 27:50Speaker 02

  But it's smart. At least speaking in Silicon Valley, so much of the infrastructure of Silicon Valley is geared around founders and investors. And that's really important. Being a founder is a lonely thing. It's great that that exists and that's a big part, I think, of why the industry has done well is that there's this communal support system. But so many people inside the companies, building the companies, it's much harder for those groups. It's harder for some than others. There's a lot for engineers, but if you're in HR, there's just a lot less. And so providing that it's good for them and it's a good opportunity for the companies doing it.

• 28:19Speaker 03

  I also think it is something that more teams can do. I was reflecting the other day that I think pretty much every, even B2B company I've worked with has had a pretty big community or open source, brand marketing emphasis to it. GitHub's obviously one, Benchling, which is vertical software. A lot of our early years was academic, nurturing scientists. Even Mapbox had a big investment in the open source mapping community and hosting meetups and conferences around all of that. I think the reason why is at some level, all of these are simple crud apps. And what people are really buying is, I think about as a way of being, like a way of achieving success. And I think community and brand nurtures obviously the economics of the business,

• 29:03Speaker 03

  but speaks to more than just the feature set or the competitive positioning. The brand should be, you're gonna say it way better, but like, the brand should be what a company aspires to being a part of.

• 29:16Speaker 02

  That we don't just sell you a product. We're selling you on being the kind of person who wants to buy this kind of product. And this idea that we stand for, even though like Miles said, a little dismissively, that it's just a crud app, but it's totally true. In a lot of these cases, we're also selling you a style of working and a system on which you do your work. I think if you can get to that point, I think that really matters.

• 29:39Patrick O'Shaughnessy?

  What are some of the mechanics around doing that successfully in the early days? You mentioned Slack, you mentioned some content, Umbrella, not the mic. What things that you did made the community, pair-wise connections within the community thrive most? Because it sounds great. Everyone should build a, collect like-minded people and nurture them and give them resources and stuff like, cool. But the how of that is really interesting. So what did you learn about like effective how to make it thrive?

• 30:03Speaker 02

  We've talked about three pillars of it, which we've called content, community and events. Community in this case, it's all under really community. The community piece of that. That shows up in forums where people can basically meet and talk to each other. So a big one for us was this Slack group, which today we got like 20,000 people in it. But we did this early and we just did the lightest of facilitation. We made a group, you could do this in Slack, but you could also probably do this in like a bunch of other platforms, creating a space that has some structure to it. Within the Slack community, we might have breakout channels that are around compensation or hiring or performance reviews or promotions or executive recruiting, whatever. And you make these spaces and then you also do light facilitation where you have somebody creating prompts,

• 30:47Speaker 02

  somebody getting conversations going, somebody maybe noticing that these eight leaders have similar interests or have a similar problem they're going through and maybe creating a group for them. Light facilitation plus a community structure like that and then letting it go. And you're not trying to like overly control it, you're letting it be its own thing. I think that was a big one. And for us Slack was the way to do that, but there are like other things you could do.

• 31:10Patrick O'Shaughnessy?

  Would you let anyone in or do they have to be a head of HR?

• 31:14Speaker 02

  Had to be in HR, had to be an HR practitioner.

• 31:17Patrick O'Shaughnessy?

  So alongside this community function and this relationship that you're building, I think about conversations years ago now with Chathin about how to let a great customer segment pull product out of you. And that the key was not to prematurely start selling at all costs. Once you felt like you had something, but let that great customer that you have a text level relationship with, keep pulling until there was nothing left before you scaled. And that proved for me, building enterprise has to be, I tell Chathen all the time, the single most valuable piece of advice I ever got, because it was counterintuitive to me. I would have just started selling and we turned out to be very patient. So what was Lattice's version of that? Knowing when to pull more and focus heads down on product more versus, all right,

• 32:01Patrick O'Shaughnessy?

  let's sell this to as many people as we can.

• 32:04Speaker 02

  The nuance for me that I think about here is I do think once you're in market, because products are so competitive and categories are just full, like Miles was mentioning, we weren't the first year, like this was a crowded market when we entered these spaces. So I do think once you're in the game, you want to be pushing. However, the way I always thought about it wasn't. Take an individual customer and push that one human. On the individual human relationship, there is a lot to be said for letting that unfold naturally. And people will buy when they're ready and you should be providing value to them along the way. And so this is why I like with the community thing, I really liked the idea of we're going to bring people into the community and we're not going to sell them once they're there. Just going to keep producing good content for them. We're going to keep telling the story, but we're not going to sell them hard. But we did go really hard on top of funnel.

• 32:48Speaker 02

  We did go really hard on getting a wider set of early conversations. So rather than pushing any individual human, we had the goal of how can we make sure that every HR person who could buy Lattice knows what we are and that's it. And so a lot of our go to market dollars became thinking of before somebody buys, they need to see this thing seven times in seven different ways. They should see our billboard, they should see a podcast, they should read a blog post of ours, they should hear from a friend, they should be at a dinner and then they're going to request a demo and then hopefully we'll have a great product for them. So our orientation at the beginning, which is a little bit slower than just sell, sell, sell, was more like market, market, market and just get as many people in hearing as possible.

• 33:25Speaker 03

  We kept it pretty lean until engagement launched. And that felt like a very different market reception, just tactically. This is sort of the engagement surveys combined with performance management, which happened in late mid 2018. Win rates, I think, went up, inbound even went up. It felt like the market was really like you could hear the proverbial suction sound of the Hoover, just playing catch up. Early on, I think it can be a temptation to say, let's hire someone to do the thing versus we don't have anyone else right here to do it. And we really need to do it now. We could have said when we were working engagement, hey, let's go hire a team to go do it. It feels like, no, we shouldn't do that.

• 34:07Speaker 03

  Like let's use the team we have to make it work and be frugal about it. I think you had this mantra at the time of hiring as a failure in many ways. It was a, we gotta do more with less. Mentality, which I think is in general probably a good thing. But it also meant we didn't get over our skis. So we could, if you tried to get over your skis too much with burn, when you were kind of pushing on too much of a rope, it can, I think, end up forcing you to make more short term decisions. Maybe it would have forced us to go up market, for example. Like if we got a burn to a place, oh, we gotta do something right now. You might have stretched that way as opposed to be saying, no, it's not that much in the grand scheme of things. Let's build a suite before we really see how that works.

• 34:46Patrick O'Shaughnessy?

  At that time, from an investor's perspective, what seemed the most uncertain? If I had asked you about it back then, before you knew it was going to become this huge company, what things do you think you would have pointed to to say like, ah, jury's out on X, Y, or Z?

• 35:01Speaker 03

  There's a lot to build, building net new products that are successful. It's a wonderful act, but a painful act. There's a lot of type two fun. The most company building is type two fun. Going back down to the bottom of the mountain and looking at the whole thing again and saying, hey, this thing's imperfect and we have a tolerance to that process of imperfection. It's very easy, I think, to, as you have some success for organizations, for like there to be incredible antibodies to reject imperfection. And to be able to keep building, you have to be able to say, we are comfortable with that process of improving imperfection, of things that look small at the bottom of the mountain. But it's almost culturally, in the DNA, setting that up, I think, can be challenging. And so, and we think about it all the time, even now, with new big launches.

• 35:45Speaker 03

  More than whatever is visible today, we have confidence in that. The other I thought about was just, it's one thing to say everyone wants it all and will buy from one person. There's all the economic rationale why having one vendor with one set of interconnected products is great. But a lot of software over the 2015 to 2020 to 2010 to 2020 period had gone to best in breed, single function. And we were saying, no, for the first segment, the combined suite. When was the last time you heard the word suite in software? We'd talk about it all the time. We'd say, we're building a suite. And I probably even shouldn't say it on a podcast because it was so, it was such heretic, heretical in the valley to talk about building a suite. They were like, we can't use the word suite. But I constantly thought, success suite, you know, what's the next thing in the suite?

• 36:29Speaker 03

  We still, in some sense, haven't come up with a better term. You don't hear that ever anymore.

• 36:34Patrick O'Shaughnessy?

  What makes it such a good idea here and a bad idea elsewhere? Is it something specific about HR as a function? Or other people have just not gotten the memo yet and there should be more sweets again?

• 36:45Speaker 02

  I think there are more companies should be sweets than there are. There obviously exist a bunch, but my view is basically that a lot of the dynamics of software building in general lead to a conclusion or it sort of must be the case. I think in the long term that the biggest, most winning companies will offer many things to their customers. And it used to be really hard to build software and it's now fast and easy. It's however expensive to take things to market because there's so much venture capital. There are so many companies doing this. It's super mainstream now to build products. And so the cost of building quality new software has gone massively down. The cost of winning markets has gone, I think massively up. And so what do you do in that situation?

• 37:29Speaker 02

  You build more software and you find ways to have cheaper go to market. And so if you've already got, for example, 1,000 or 10,000 customers or whatever, selling into that existing customer base is much cheaper. And so you can spend a lot fewer go to market dollars on the process of selling into that base. And then you can spend more money building a better product. And so even though it's cheap, you can then build more product. So to me, there is a flywheel where if it's possible to do, it's a huge structural advantage for companies because you can spend more of your money on building more better products and relatively less on go to market.

• 38:05Speaker 03

  The greatest companies, that's obviously the case. I think more should do it also is my total inclination and instinct at all investing. When partnering, like, will we suffer the perils of indigestion? Can you imagine in five, seven years from starting, being at the board meeting, having interesting product OX still ahead of us? I think that's the exciting place to be. I think many people, it wasn't as done in that period. In part, I think because the software markets became bigger than we all might have thought. And so, single products can go further than anyone necessarily thought. And again, I do think sort of in terms of organizational DNA, it is painful trying to bring mediocre V1s to market, right? You have to be able to say, hey, we have all

• 38:48Speaker 03

  these customers, but the thing we just built only works for this some subset of it, but we know we're going to go on that arc. You have to have sales teams who sell the whole thing, but now don't know how to sell this thing or won't sell this thing. So you've got to figure out how to do that side of it. So there's all sorts of complexity to it. With software markets as big as they did, as fast as they were growing in that period, you can definitely be lulled into the complacency of this one thing works, I don't need to bother. It's easier in many ways. I think if you actually look back at a bunch of teams, you can find all the case studies for like, it, you should just do one thing and do only that one thing, which is sort of the central dogma, obviously. There's more case studies than people wish to acknowledge, I think, on the, no, we did a bunch of things and we did it actually pretty early on. You take HubSpot, I think

• 39:30Speaker 03

  they started working on sales at about 50 to 70 of revenue, not 250 or 70. I think Viva did Vault at like 20 odd. You go back and look at Adobe, way old, right? Obviously, though. Five years in, I think they'd done, obviously, desktop publishing where they started, Illustrator, vector work, and Photoshop for raster work within the first five years. They had three products in that suite. We think of Square, it's a really horizontal HubSpot, Viva vertical, take Square even. I think within two years of launching Square, the B2B small merchant thing, obviously, they'd launched their first consumer wallet app. And it eventually got shut down. Eventually, they got to Cash App. But within two years,

• 40:15Speaker 03

  they were working on the idea of what's our consumer side experience of this.

• 40:19Patrick O'Shaughnessy?

  I feel convinced to be long sweets, and I'm curious what you remember being the hardest or most stressful. Moments about doing that. What was the pain or the cost of this decision to do a lot of things at once early on?

• 40:34Speaker 02

  The way Miles described why it's hard for a business, that is so true. It is the hardest part. It's the last moments before you launch the new thing where you have spent so long laying this groundwork, pulling the company along. You're deflecting resources from an existing business that is working, that is crying out for more resources. As you're doing these things, your mainline product is just hungry for more. And you've got real customers and real growth. And can you please build these features? No, we're all in the tank over here, building something we can't tell you about. That's awful. And then your customer success team is like, hello, we have this long, obvious feature list and real people saying they'll pay us real dollars tomorrow. Can we build it?

• 41:16Speaker 02

  Or the sales team is like, this is so obvious on the main product. And you're pulling people through a long period there. And, you know, we'll never know because we'll never get to run the experiment twice. But we spent nine months building engagement product in 2018 before we launched it. And that year, our growth was linear. You'll never know if we had spent, instead of putting five of our seven engineers on this thing, no one was working on. If we had all seven working on the core product, would we have grown faster? Like, you'd think so. You'll never quite know. It gets much harder as time goes on. The bigger the company gets, the more dissociation you have from the people who are thinking in mature ways and the scrappiness and immaturity that is inherent to a new product. Now, today for Lattice, it's 600 people.

• 41:59Speaker 02

  We just got through this big launch of this HRIS product. We spent over a year and half of our engineering, product and design team resources on this thing. Because that's like a painful thing to go through where you've got this mature company in a hard market and you're spending all of that energy on this thing that doesn't exist yet. And you're sort of holding this tension of this future story out for the company where they're all like, let's hope. And so the bigger you get, the more people you're bringing along, the more people you have who have less experience with like what an early stage startup looks like. And so basically it's harder and harder and harder the longer you go before the rubber band sort of snaps and catches up with whatever post you were holding. Those last moments are just tough.

• 42:40Speaker 03

  There's one thing that if other teams went that way, there can be a temptation to have a very shotgun strategy to it, to try five things at once. Instead of early on, having put five engineers on the new thing of seven, now we're putting 50% of EPD on the next thing, there could be a temptation to say, okay, so 50% on one thing, let's do 10% on five things with our 50% bucket. And I think it was right, and I think it is right, to sort of sequence intentionally with expectations of success and desire for success versus, hey, let's try five things and see what works. We sort of sequencing rifle shots is certainly more of the experience I've had with most teams.

• 43:22Speaker 03

  I was actually looking at a Netflix interview when a blockbuster came and attacked them and Reed was like, we did a social network and you could buy secondhand DVDs from us. And they were like, we did four things and we felt really good about ourselves. I've actually had a few experiences where teams have done a few things at once. I don't know any of them have ever really worked out. Netflix shut it all four things down, but you feel good because you're trying, you're doing many bets, but optionality actually can be the antithesis to the needed intensity and conviction and expectations to make it successful.

• 43:53Speaker 02

  This also reminds me of what I think is one of the nuanced sort of challenges of being a board member or an investor to this type of company. Miles will, in the same conversation, flip between pushing on what's the current quarter and like, where are we with the current products and where's the business? But also like, what's next and are you investing enough in this new product? And those are at odds. I think that is one of the nuances. Those two things are at odds, but both have to happen. Like, you can't pick.

• 44:19Speaker 03

  You can have a mentality of, oh, if only, when X. I've experienced that where you're like, we're just going to launch this next thing and then, you know, then we can grow again or then we can close some more revenue. My view is always, you're way stronger if you're bricklaying. It should work. Today should be good enough. It might not be perfect, it might not be the very best, we should be able to be better because we're doing this. Today should work and simultaneously, the new thing that you're working on can hide. In the organization. And so when I've done these multi-product journeys with teams, I think about two things. One, like, how much of the CEO's time is on it? If the CEO isn't on it, or founder isn't on it, it's not going to work. In part because I said to someone once, if it's not worth your time, why is it worth the company's time? It's either important, or it's not important. If it's important, you should be spending time on it,

• 45:03Speaker 03

  especially because of this organizational challenge, right? The antibodies that exist, the cross-functional nature of it all existing, the risk-taking that is required to do it. And I also sort of pushed on, if there isn't some board metric, I doubt there's like the internal metrics. And sometimes you can be like, we're not measuring that yet because it's new and nascent. It's like, that's okay. It can be 10 users. But if like, there isn't a board metric, then it's not important to the board and leadership. Don't make it just for the board meeting, obviously. Like, it should be the outcome of what's happening internally. But if we can't see it at the top, and that is in the board level, at the summary level, probably not getting enough sunshine deeper inside the organization.

• 45:40Patrick O'Shaughnessy?

  When did you two most disagree in a company's history?

• 45:43Speaker 02

  I feel like we're constantly disagreeing on small things and resolving them. I don't know if we've had like a big lingering one was. We have this style of relationship, I've seen Miles do this with other founders too, where we don't leave it open. We're not the type, or our relationship is not the type, where we would disagree on something important. It almost sounds too personal to say it this way, but I don't think we would go to bed with that kind of disagreement open. Like, we would probably be arguing at 11 at night, more likely.

• 46:10Speaker 03

  A former colleague used to say, life advice, don't go to bed angry.

• 46:14Speaker 02

  And I don't think we would. That's not that we don't meaningfully disagree on substantive issues, but I can't imagine a situation where we would not be working hard to convince the other one, and both trying to be very open-minded to the other one's perspective. Which, by the way, is also, I think, a really important thing in like a co-founder relationship. You can't do this with an entire board, but certainly for Miles, he led our seed and then he joined our board when he led our A. So it's like a long, deep relationship where he is extremely close to me in the company. A lot goes into that, but I think that Type of relationship where just like you shouldn't go to bed angry, leaving something open with a co-founder. I think if the CEO and the board member

• 46:56Speaker 02

  who is closest to the company are really on different pages and they can't work through that, then I would, you know, there's going to be a relationship thing that is worth investing in.

• 47:05Speaker 03

  We can disagree, but like can't enduringly disagree because I really believe that my role, the role of any board member is to really help the founder make the best decisions. It's their decision. And if it's their decision, like that's the best decision. People talk about being founder friendly and I really never liked that term. It feels apathetic. And I think if you have a founder friendly mentality, you're sort of scared of that, of disagreement. Jack and I would sometimes say to each other, do you want me to be supportive or honest? Sometimes you do just want the support, but I think about it as being as founder respect versus being founder friendly. And I think if you have that respect and you're oriented to the greatness that's possible, you have a responsibility to challenge, to try and pose the alternative, to try and make the implicit more explicit, to try and frame the trade off

• 47:50Speaker 03

  that Jack's making a decision around more harshly, to provoke clarity of thinking that leads to the best decision. If we wanted, the only time we did disagree, and that was like disagree and commit, I really think about was probably the series B. Go out to raise a series B.

• 48:03Speaker 02

  Summer of 2018. So this was 3 million of ARR and we're partway through the build of engagement surveys and growth is linear. Forty employees, let's say.

• 48:12Speaker 03

  And my view is the burden of proof for who we are in the market we're in is really high. And we haven't met the burden of proof to have a great fundraise. And we have a theory, which is a suite, connected products that will be stronger. And let's get to it. Let's just do it. And so let's not do it now. Let's wait next nine months and go do that. And you were like, no, I think we should do it now. And there's some people who are excited. We disagreed and you could have said, I don't think it's good. Try and not introduce to certain people. I was like, no, okay, great. We're doing it. Let's make the best possible deck. Let's really push the way in which we can frame the story.

• 48:51Speaker 02

  You were right that was not Series B fundable at the moment. Empirically, it turned out to be true. But I'm also really grateful that that happened because we learned so much, both about ourselves, how the market was going to think about us. I learned a lot about fundraising. But that moment when we couldn't raise, that led us to this internal period, that summer, that we internally branded wartime. We ended up becoming so strong as a result of that, where we said, you know what? This company might not be something that VCs want to fund, but we have so much confidence that we can build something big. So we need to set ourselves up that in case we can't fundraise ever, we can go from a company that was on the VC train to a company that's just going to self-fund. And that's just what it's going to be.

• 49:34Speaker 02

  And we did end up, six months later, still a really tough raise. We got one firm interested, basically, for our Series B. We did get it done, though. But that sort of DNA that we rebuilt for ourselves, that was huge culturally. What did you learn about investors and fundraising in that period? I learned there that they have a job to do and they have a set of responsibilities that are nothing to do with helping a founder who they're not yet invested in. And that's okay. That's normal. That's how capitalism works. That's like why the market is good. Before I buy some toothpaste, I've got no sort of obligation to Colgate, whatever. Like, that's just like how the world works.

• 50:15Speaker 02

  But the job of doing VC well requires making founders think that you think things you don't sometimes. And that's the cynical layer that I've added on top, is that their whole job is to be out-meeting all companies and having all companies think that they might want to invest in them. Like, that is what's required in order to get the option to invest at some point. Because I think I probably had heard that before, but when you really watch it play out with somebody who is incredibly charismatic and smart and takes you all the way through the journey and gets you to a place of, oh, this fundraiser is going to be easy. They're pumped. I'm going to crush this. And then you learn that that's all a no until there's a term sheet. And I think that's one of the updates that I think a lot of founders go through this,

• 50:59Speaker 02

  though, where you end up getting hardened through that one time when you have a tough fundraiser and you then don't have to learn that again. What do you think about that, since you are a full-time investor?

• 51:08Speaker 03

  I think it's definitely true. I personally acknowledge it. It's not a no until it's a yes. There are different degrees of it's not yes yet, though, along all of that. And I personally try to just be really, it's my disposition, like transparent around the questions and the things I'm wrestling through, right? Some people have a mindset of total selling in that journey, almost to the point of like not acknowledging challenges or key questions that you're sort of be working through. It's like, that's positive. Tell me, I try to have more mentality of let's start this conversation from a place of we are working together. The future. I often think about the experience, I think it's true of a board meeting as well as true of

• 51:49Speaker 03

  getting to know a new team. It should feel more like planning an adventure than getting a colonoscopy. It should feel like planning adventure, by the way, if you're going out in the back country and there's inclement weather, like there's some serious topics you need to talk about. You don't just head off, take inventory, what can we do, what can we do, plan A. Like there's important work to be done in planning an adventure. It's exciting and it's forward looking and you're planning it together versus like, hey, let me try and give you the diagnosis and a painful examination kind of thing. And so I kind of tried to take that mindset. And so even if it is a no, a founder walks away feeling like, you know, they had a really great discussion, maybe got some more clarity on their own. It sort of pushed and provoked thinking that will sit with them. And so in some sense, we had like a great

• 52:33Speaker 03

  working relationship in that figuring out if we will work together.

• 52:37Speaker 02

  But just by disposition, you wouldn't be the type where this kind of confusion, I think, would happen for founders, which I think is a positive thing. The difference is imagine like a situation in like a personal dynamic where you were just meeting somebody for the first time. Pretend this is like the founder VC thing. And instead of ending with a term sheet, it was going to end with being invited to their birthday party. There are dynamics where in a regular human relationship, the signals you'd be getting in some of these founder VC dances, you'd be like, if I don't get invited to this birthday party, I will lose all my confidence in what human relations are about because every signal has been positive. They're telling me I'm great. They want to spend time together. They can see the future of this friendship. You'd be shocked if If you didn't get invited to the birthday party.

• 53:20Speaker 02

  And so I think when you're thinking in those human terms, and I think I'm probably in the early days felt more prey to this, just my default is optimistic. And I don't fault anybody for it. I think it's just the nature of private market transactions has some of this inherent where the capital is choosing the asset and the asset's also choosing the capital. It all follows naturally from it. So I don't begrudge anybody.

• 53:39Patrick O'Shaughnessy?

  If you could imagine, we were having this conversation in front of, I guess, virtually, we literally are, a stadium of professional investors, of buy side VCs and public equity investors, et cetera. And we did like an open mic Q and A. I'm curious what both of you would have to say. What would be the best question about Lattice that someone in that audience could ask?

• 54:00Speaker 03

  Around the platform and the suite would be like, is it really true that things are better together? Does any customer give a shit? Okay, you can have a suite and I can have Illustrator and Photoshop, but they're separate things and you can buy them separately. If you're saying it's connected and important, which we say a lot less of, then we don't need to position ourselves as foils per se. But there are some who would say it's all about the connective tissue and you use the connective tissue to drive any product strategy. We've never taken that view. We said we drive a product strategy and happen to connect it.

• 54:29Patrick O'Shaughnessy?

  Say a bit more about the employer and the relationship with the employees and how that's changed. So the kind of the ZIRP question. Obviously, there's been layoffs. World's a little bit different. I don't know. It seems like a secular, not cyclical trend, like companies more visibly care about things like this that Lattice enables.

• 54:46Speaker 02

  Yeah. So there's this pretty long, deep, real secular trend that happened over, like zoom out a little bit to, let's say, 30, 40 years or something like that. And a bunch of things happened between 1980 and 2020 that structurally gave employees a lot more advantage in the employment relationship. The internet obviously was a big one. It allowed for remote work, but it also allowed for a lot more job transparency. LinkedIn. So it was much easier to move between jobs. There are a lot of ways in which the skills that people have in modern companies, certainly in tech, but I think in a lot of places are incredibly transferred.

• 55:28Speaker 02

  So you think about working at General Motors and spending a 30 or 40 year career at General Motors and the work you were doing in the specificity of what you've learned in the context of that corporation in your town where that was like the dominant company versus taking, working at say, just like a great software company like Asana. You think about what are the skills that are being used there and how transferable are those? It's obvious that you can move around much more to many more substitute companies in today's world than it was in the past. There are of course also with just the rise of tech in general and then you get rising salaries, you get sort of just like market dominance as tech in the last, let's say 15

• 56:08Speaker 02

  years went from, you get to a place where the winning companies are so unbelievably winning and so unbelievably well capitalized that the wars over talent are just fierce. And then you pull it open and it actually makes sense. Imagine what it's worth to Google to put an incredible engineer on AdWords and make it 0.1% better. It's worth paying them almost anything. And so you get to these places because of the internet where you have these, the superstar effect where one person's impact is so unbelievably magnified that happens in small ways and big ways where people are not just in today's economy. It's not that everyone is just, I'm doing a thing on a

• 56:51Speaker 02

  unit time and that unit of time can go up. It's actually the impact scales way outside of time. And so you get to these just crazy dynamics where the competition is just ruthless for talent. And I think you take that backdrop and then you add zerp on top of it and employers were just doing anything to hold on to people. You'd go in an interview process for a candidate, you'd meet them on Monday and for the first meeting and on Tuesday, they're calling you and they're like, hey, I know you've got an interview process, but I have 11 offers and I'm going to sign one by three and here's what I'm getting paid. And I know it's 30% over your highest end of your bands. Are you going to present me with an offer? And you're just like, wow, we got to a place like that. That was at the crescendo of both this multi-decade journey as well as this

• 57:35Speaker 02

  like moment in time journey in the sort of smaller 10-year run that we had, or 12-year run or whatever it was. Things just got to a wild place. And I think now to your point, that long-term secular trend still exists, but we did come off a crescendo on it.

• 57:50Patrick O'Shaughnessy?

  I wonder to what extent the shift from defined benefit to defined contribution pensions, like just another subtle variable that pushes that secular trend upward where it's just less likely that someone's going to stick around at one company. It was interesting that you started that Miles had that conversation about you got it at some point to matter be 100 million growing 50% and that seemed ridiculous. Yet here we are. Now the next one is, okay, if you're a public markets investor or something, you got to be a billion of revenue growing 20% or whatever it is. And I want to hear about your margins and your free cash flow. And as you face down that next, it always seems like such a crazy high rate of growth or something, but companies do it and you've done it so far. What do you think about going from where you are now to really like big public equity type status numbers and thinking about margins, what it feels like to think about margins

• 58:35Patrick O'Shaughnessy?

  versus product, the balance between a great financial product really for investors and great products for your customers?

• 58:42Speaker 02

  There's the product, there's the team, there's the sort of management of the company. But Miles, I'd be curious to hear you speak a little bit to the genetics piece because company products and just like market genetics is something that I think Miles has pushed on for a long time is on some level, you're going to set up an initial condition set and that's going to define a lot around it. You're going to work within that. And I think even for us now with this HRAS push, what I'm thinking about, what I know Miles has been thinking about is what is the setup you're going to need to believe a story where at a billion, you can add 200 a year. And to me, I think so much of that is putting in place today, the product, market, customer segment genetics that are going to make that possible. But I'd be curious for you, what you think about from here to a billion?

• 59:27Speaker 03

  At some level, just because you needed something now, you might say you should have started with that. And so that's where like HRAS I think gets to, which is like the core system of record for employee data for the mid-market. I think it would have been actually pretty hard to start there and displace it versus having a set of products that connected to that make it much better. But to that next arc, having that central system of record that has best Class products on top of it and interconnected with the fabric of all the other tools you might want to use on your journey. I think about that 50 to 2,000 person company, many companies stay there forever. And it's a pretty long journey, even for really exceptional ones in the grand scheme of things. And there's a bunch of Lego blocks that you'll add in over time.

• 1:00:11Speaker 03

  You might start with just one thing and we can get you on that and then you'll build up. And then if you graduate off of 2,000 to 5,000, you'll start turning off Lego blocks. That's how I would hope that the product is working for customers and therefore the sort of business implications of that. I would say we raised a bunch of money like many did in 2021 and 2022. And at some level, you could run the company today more lapsariously than we aspire to right now, because it doesn't really matter. I guess if we go out in the next two years, people might see today's, you know, financials, but you could be more loose about that. And I think we've tried setting up as best as possible that rigor. And so comparables today, we really talk about it not being burned, but investment.

• 1:00:55Speaker 03

  We look at the performance apps and, you know, accounting for obviously, but also like independent of the investment in the new initiative. And like that should be getting operating leverage in it. We acknowledge that we're in a competitive, not totally new greenfield market. And so things like G and A performance and sales and marketing performance like has to be good. And there's excellence for that. People have accomplished in the past and we should aspire to be as good as at least. Maybe Nvidia is proving to be the only exception here, kind of at the moment of just radically define the odds and defining in a crazy new. But a lot of companies, it's important to have like as much excellent rigor day to day along the way.

• 1:01:36Speaker 03

  And the financial performance comes out of being the very best of that. And I think that's at least the mindset. That is a critical stakeholder and constituent, and you don't suddenly turn that mentality on. We've pushed to go on the journey of that mentality. Starts when you're a small company, just at some level, like adoption metrics and cash payback, but obviously leveled up.

• 1:02:00Speaker 02

  This is why I think it is actually valuable to think, I don't have to actually plan five years out, but visualize what needs to be true five years out and then at least try to understand like, what are the beginning steps I can take to getting there? One new lens that is on my mind now that is not a way I've been thinking to date, and still not quite how we're like managing the company, but I think is going to be important between here and a day when the public market investor would be asking those questions, is imagine a world where you have 20% cash flow margin on a business and like something that public investors would be really excited about. For me, it's really easy to just like think in simple terms. And when I'm thinking about like a new product, just price times quantity and simple is good. So if you're like, okay, we get to spend 80% of our revenue

• 1:02:43Speaker 02

  on the business because we need 20% left for cash. We know that we are like a multi-product company. We know what public sort of comparables look like on engineering and product spend. So let's say that the most of the markets at 22% of revenue is being spent on R and D. Maybe we're going to spend 30%. Okay, so there goes 30%. G and A, like what do public companies spending? We don't have a real reason to believe then the long-term will look different. So there goes another 16% or whatever. We've got some amount of customer success we need. For us, our long-term gross margins are basically all to do with people costs. We think it's going to be whatever percent, 82, whatever it's going to be. There goes another 18% that's just gone there. We know that we market and sell in these

• 1:03:27Speaker 02

  kind of ways, but we only have 26% left or whatever the number is. And it all has to happen in that. And then when you start to think in those terms, and then you look at where you are today, and you start to think about things like, geez, what is our net dollar retention need to be for this all to have a chance of working? What's our CAC payback period going to need to look like for this to make any sense? What ACVs do we need to have implied? What are we going to need to do on all of these different functions? From there, you can start to say, gosh, what we have today is structurally not set up yet for that to be a believable story. So we're going to need to do different things. We might need to open offices in a different location because this cost structure is never going to make any sense because I know we're going to need 400 engineers by this date and there's No way the growth is going to get there.

• 1:04:12Speaker 02

  Or we need our cost of acquisition to look like this. And you say, well, we know that selling a net new customer costs this much today versus a current customer costs this much today. Maybe I can believe a story that we improve either by 20% or 40%, but I can't believe improving it by 200%. So I got to sell more to current customers. Oh geez, I got to sell more new products to current customers because it's cheaper. And you can like walk through those exercises from that. And that can start to paint a picture for, I'm not going to have just a fantasy about 20% cash flow margin. I need to have actual tangible ways that I can see that coming to fruition. So I think that is one method, I think, where the framework can at least help you see where something is structurally broken. And it's a multi-year journey to fix it and I got to start now.

• 1:04:56Speaker 02

  What do you want Lattice to ultimately be? I think for Lattice to reach its full potential, what it'll look like is still grounded in the original insight, which is that what companies need is a modern set of tools that help them do HR processes that put employees first and sort of honor the fact that employees are the most important asset that the company has. And treating talent, you know, the same way that Salesforce treats the quality and clarity of insight that you get from the whole pipeline or what you get in finance with the finance suites, where you can track things with incredibly meticulous detail. I think in the HR realm, that has not been possible in the past,

• 1:05:40Speaker 02

  where you don't have good connection points between the whole journey from their first interview to the way they got on boarded to, did that interview make sense? How are they performing now? Which managers are being effective? What happens when I change compensation in these different ways? I think there's a depth of insight that is possible with HR, where you can elevate the employee sort of dynamic for a company from one where you're just employing people to one where you're incredibly strategic about all these details. Because all that information exists, it's all knowable. In some sense, it's harder to get and to massage than sales data or finance data, but it's all there. And I think it starts with this very human lens, but it requires. Requires building a huge amount of product in the long term because you need to connect all of these things.

• 1:06:25Speaker 02

  And so my hope for Lattice is that we end up with a suite that treats employees with that level of respect for how valuable they are and is warm, not cold, and is sort of human, not process oriented. And so to me, I think that is what we need to build towards, but it still is full suite build because you want to own as much of that employee journey in life as possible.

• 1:06:48Patrick O'Shaughnessy?

  Kind of a similar question because obviously if it comes, everything he just said, it will have turned out to be a great investment in all likelihood for you. When you're assessing something like this, early on, you led the seed and the A. What are you thinking about? How do you triangulate on some of this kind of stuff that's relevant now at a big size? Thinking about a much bigger size when it's nothing like, is it just the founding team? Is it the market now, your opinion has become much more important? What does it feel like early on to be sussing this sort of thing out? It's easy to say it was great and fun now that it's worked, but before it worked, what was that like?

• 1:07:23Speaker 03

  A lot of investing thinks about just the side of the equation, which is making great decisions. And I think there's a lot to then making decisions great. And what I mean by that is that we could try and analyze the whole thing up. You can't really do that. You get going and you try to make that decision to partner turn out to be a really great one. What sets up for that, I think a lot about what's the quest that you're supporting a founder on? Will we get to face the perils of indigestion? Is there an arc that seems sort of crazy, seems far out to be talking about, but like there'll be a lot to build. There'd be a lot to serve in the market. Do I think that the business can have, I use this word, great genes? Do I think we can have sticky customers? We can have decent market share.

• 1:08:07Speaker 03

  There's high willingness to spend in the category. All margins aren't competed away. You know, sort of like the genes that will set up to, you can imagine having a public company. Take a bunch of HR, there's a bunch of HR public companies. There's a bunch of HR acquisitions, like there's a ton of market cap in the pace. Pay calm, pay soft, et cetera, let alone others. And so the idea here was there's a mid-market opportunity. Who knew which direction? Exactly it will go on, but there's genes that say precedents or where it says, yeah, can build businesses here. And then lastly, but probably should be first on the re-ranking of these, obviously, is does the founder really want to go on that quest? And will they derive energy from that and fulfillment from that and motivation from that?

• 1:08:49Speaker 03

  At some level, that's the feel. But I would say when I met Jack, anyone would have been able to say, Jack definitely wants to build a company. I don't think that's enough. I think there's got to be some authenticity and having Jack building an HR company like seemed counterintuitive in many ways. Like, what does this guy know about HR? Why does he care about HR? But when he spoke of it at that point, just sort of okay, I was, but we spoke more generally. He was really reflective on his time at Teespring on sort of like employee success, development, goal setting, alignment in a way that wasn't, hey, I need a company. Okay, let me do this thing, but was really, Lattice submission is like make work meaningful. And it wasn't encapsulated in those words then, but you felt that there was real

• 1:09:31Speaker 03

  interest and authenticity to that pursuit and could also tell at that point that, which you can tell today. I think to go into that market and just be especially the mid-market and try and create when it was already competitive, you've got to be the sort of P person that others will gravitate to. And I can do a lot with not a ton. I think Jack, to the point of how many customers you have relationships with, had that spirit. You could have said, go get a pavement pounding salesperson. I think some of our competitors were kind of that. Great. You go up to 50 million of revenue. You're going to have to go on that product arc. Could have got some airy intellectual engineer who was going to perfectly try and measure performance off Jira tickets and it like, it would be too cerebral

• 1:10:12Speaker 03

  and not what anyone really actually was going to buy. But the intersection of reflective and authentically curious about combined with product chops, combined with like that scrappiness and energy was in some sense, I think a lot about like rare combinations of qualities coming together to go attack a market.

• 1:10:30Patrick O'Shaughnessy?

  I have three words that come to mind for whatever reason. I'll give all three to you and you can reply however you want. If you think about Gladys's history to this point, the thing that you are most embarrassed about, the most proud of, and the most excited for, what comes to mind?

• 1:10:46Speaker 02

  There are a ton of just regular, ongoing, daily wins and embarrassment. But I would say if I like many years after the fact, think about the real, critical parts of the story, I think the thing I'm most proud of is that we've been willing to, not quite bet at all, but bet a lot more than usual on the next product. And Miles pointed out one of our company values of what's next. I think we've been really willing to, in the face of things going pretty well on what's happening with the core business, to divert resources to keep pushing because we know that there are like higher peaks. And that's been hard a lot of times. A lot of it's been obvious in hindsight, not foresight.

• 1:11:28Speaker 02

  So I'm proud of the company for doing that over and over. To that point, I think the thing I'm maybe, I don't know if embarrassed is the right word, but maybe a regret or something in this flavor of word. We knew, I think, that this product that we just launched, the HRIS, we knew this was important a long time ago. And we knew it was a hard build. We knew it was going to take a long time. We knew it was a whole big thing that would require us taking a ton of energy away from the company. And I'm embarrassed that we took as long as we did to get to this place, to put this product out and to invest the resources to see if we can go and become sort of the dominant platform in the mid-market.

• 1:12:11Speaker 02

  Because we didn't just realize it two years ago, we realized it like five years ago. And there were moments when we could have started planting seeds earlier. And even if we didn't give it nearly the resources that we're able to give it today, time is one of the like huge dimensions to any software project, even with a small team. So I feel like if I had some of the leadership qualities that I think I've accrued over time, then I think we could have pushed faster on that. But that also brings me to the last. One which this is the thing I'm the most excited about is this new setup that we have as a company where we're not just providing our customers with the applications around people management, but we are really giving them a full HR platform where they can do so much more.

• 1:12:53Speaker 02

  This can be their sort of system of record for employees and we can give them this thing that I think people have wanted to see exist for a really long time. Where there's been companies like Workday that are fantastic, upmarket and for real enterprises, give them like an incredible depth of the functionality. There have been some really special companies at the lower end of the market who bundle a humongous number of products together and give new startups out of the box like a really great set of tools. And then I think companies in the middle, Lattice being like an example of them. When you've got hundreds of employees and you're not yet ready for the enterprise, but you do need a system with real maturity. I'm really excited for that future. So this is the thing I'm most looking forward to now.

• 1:13:35Patrick O'Shaughnessy?

  It's incredibly fun to hear an investor operator dynamic in this way. I hope we had this idea last time we were together and it's incredibly fun to do. I hope I get to do a lot more of them. I'm lucky that I got to ask Miles already my traditional closing question. So now I just get to ask you. What is the kindest thing that anyone's ever done for you?

• 1:13:52Speaker 02

  I don't know if this is the kindest thing that anyone's ever done for me, but this is something that turned out to have one of the biggest impacts on me professionally. It was actually before I had fully decided to leave Teespring. We had hired somebody new into the company as our CRO, a guy named Robert Chatwani, who then led on to be CRO at Atlassian, who was just a fabulous manager and I only had him as my manager for like several months at the end. One of the things that as an aside is being managed by somebody who's incredible at it. It's such a treat in the same way that being sold to by like a certain kind of salesperson is just delightful. Being managed by somebody who's truly expert, it really makes you better. It really makes you appreciate the nuances of empathy and human understanding.

• 1:14:36Speaker 02

  It helps you see what it looks like on the experiential side of somebody who's pushing you, but also supporting you. And so that experience I think was even in just a few months was a big part of what I think gave me like a love for the craft, even though I loved it before. But that was my first time really getting to be managed by somebody excellent at it. But the thing that turned out to be really kind for me that I think set me on the path to doing Lattice, it was the early formation of a lot of my values. I had a huge amount of trust and I shared with him, look, I'm not sure what I want to be doing with my career. I don't know what I want to do. I'm thinking about A, B, and C, like, what do you think? And he's like, I wouldn't go there yet. Why don't you do an exercise for me, for yourself, but for me?

• 1:15:18Speaker 02

  And next week at our one-on-one, I want you to tell me what are the things that bring you joy at work? That's it. Three things. Just tell me, what do you care about? What drives you? And I go away and I think about it and I realized it was actually hard for me to get to my answers. But talking it out with people and thinking about it, I got to answers. I bring them back to him next week and he helps me and he pushes on them. He doesn't just say, great. He says, well, is that really this? Like, give me an example of that. Well, do you actually mean this other thing? Why don't you take one more rev at this? Because this is going to be really important. So I go do another rev and I come back with these things that really matter to me. And this time I feel very solid in them. And it was obvious to me at that point that I wasn't going to be able to do those things

• 1:15:59Speaker 02

  in the context I was in and that I would need to go start my own journey and make those things extremely central. And that exercise, like along the journey of getting there, I was just so much more clarity about what I needed than I had had. And if you've ever been in those career moments, 17 things are swirling and you have no clarity, that's so stressful. You know, you can't sleep at night every, things don't feel right. And all of a sudden I had this set of guideposts and that was something for me as a manager that now I try to do that as often as I can with everybody that I've worked with and it helped me create my own values. So I think that exercise, even if it didn't cost him a lot to do, that turned out to be hugely impactful. What were the things? One of them was that I wanted to work with people who were energized, optimistic,

• 1:16:44Speaker 02

  inspiring, smart, pushing for greatness. And that when I was around those people, I was happy and when I wasn't, I wasn't. And I realized that I had that in my earliest days at Teespring, and then I had lost them. And there were various other things, but I'm like very people oriented in general, and I can't be happy if I'm not working with people who sort of share a bunch of those values. Another that I realized was that I don't want to be ego driven, but I also recognize that I'm human and I want to do something that matters. I want to feel like I have impact. I want to feel a certain sense of importance. And I don't think it's an ugly value, but it's maybe not the purest, but it's like something that matters to me. And I recognize that. And I'm like, I'm just going to admit that to myself that like, I want to be working on building something, doing things that matter and that I care about.

• 1:17:29Speaker 02

  And then the last was that I realized that I feel best when I'm working on something that's hard. And not just the kind of hard that is not like daily challenge hard, not weightlifting hard, but intellectually hard. Something where there are puzzles that need to be answered, where there are real questions that require stretching your brain a little bit or a lot of it to get there. And I realized I didn't have those things, but I also realized that that was what I cared about. And I think having a sort of professional values for yourself, that fidelity that is pretty generalized, but somehow specific, I think that for me, that was really important.

• 1:18:05Patrick O'Shaughnessy?

  People are going to start to get very sick of hearing me say this, but I don't care because I think it's important. My definition of life's work is a lifelong quest to build something for others that expresses who you are. And I love that your answer is someone helped you on that last piece. Someone helped you get the things to go then express. And I wish everyone in the world could have that guy do that exercise for them. Everyone's life would be a lot better. So what a cool closing story, a very unique answer. Thank you guys so much for your time.

• 1:18:33Speaker 02

  This is great. Thank you.

• 1:18:35Patrick O'Shaughnessy?

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