Pod Insights a16z Podcast a16z Podcast | Finding Go-to-Market Fit in the Enterprise About this episode with Peter Levine, Bob Tinker, and Hanne Tidnam (@omnivorousread)
For consumer companies, often when the holy grail of product-market fit is achieved, the company takes off: magic happens, growth unlocks. Enterprise B2B companies face a different challenge. Sometimes, despite achieving product-market fit (and knowing when you've achieved it) and winning your first cohorts of renewing customers -- growth remains a challenge. Industry analyst maps are riddled with the logos of enterprise B2B companies who built outstanding products, won outstanding initial sets of customers... and then ultimately failed to scale.
In this episode of the a16z Podcast, Bob Tinker, author of the book Survival to Thrival and founding CEO of MobileIron, and a16z general partner Peter Levine, talk with Hanne Tidnam all about how to find the right go-to-market fit for the enterprise startup. How do founders avoid that moment of reckoning after product-market fit, but before growth? When should an enterprise startup accelerate sales investments? -- the "Goldilocks problem" (not too early, not too late!) -- and pick the right sales team and go-to-market model for their product and their customers? And if you're stuck in that moment where growth stalls, what are the right tools to get out of it? What are the important metrics to know both where you are, and when you're out of the woods?
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:01 Hanne Tidnam? Hi and welcome to the A16Z Podcast. I'm Hannah and in this episode, Bob Tinker, author of the new book Survival to Thrival and founding CEO of MobileIron, and Peter Levine, A16Z general partner, talk with me all about finding go-to-market fit for the enterprise startup. Even once you've found product-market fit, a lot of enterprise companies never quite hit the gas on growth and can stall out at that critical juncture. So what are the right tools to figure out that missing link of the right go-to-market model? How do you unlock real growth from that moment? What are the different sales and go-to-market models and how do you choose between them? And what are the important metrics you need to be paying attention to? So Bob, let's first maybe start by talking about what product-market fit means for
0:43 Hanne Tidnam? the enterprise startup. How is it different for the enterprise startup versus other categories?
0:48 Speaker 01 I think there's a bug in Silicon Valley, which is that at our core, I think we're fundamentally a product shop and we are really, really, really good at helping entrepreneurs build products. But we are not that good at helping entrepreneurs build go-to-markets on the back of their products. There's not necessarily sort of the institutional knowledge that is passed from company to company to company about how to build go-to-markets. For consumer companies, when you find product-market fit, the company takes off. Magic happens. Growth unlocks. For enterprise and B2B companies, where the sales process is more systematic, customer decisions are more complicated, you can get the product-market fit when your first 15, 20 customers, but growth never really unlocks. One of the
1:34 Speaker 01 real core challenges for the B2B community is there's a lot of startups that get to product-market fit but never unlock growth and just sort of bump along.
1:43 Hanne Tidnam? How do you know you've got product-market fit if you're not actually growing? Doesn't it by almost by definition mean you don't have it if you're not growing?
1:50 Speaker 01 Well, I think it's an order of magnitude about how fast are you growing? You know, in many ways for enterprise companies, getting to product market fit means can you get to five, 10, 15, 20 customers that gave you money? And are they actually using your product and are they willing to say good things? Like, that's a huge accomplishment. It's incredibly hard and there's a lot of startups and ideas that never make it to that point. For core enterprise companies, like, how do you go from winning 10 customers a month to 50 customers a month to 100 customers, to 500 customers a month? And that's where sort of this missing link is between how do you win some customers and prove you have value to how do you really unlock rapid growth? There's a difference.
2:35 Peter Levine? One of the things that we're seeing that's sort of a new phenomena are enterprise companies that do have a bottoms-up model whereby they do start with the consumer, which is typically a employee in a company where the product, you know, in some ways sells itself. And so that's another way of thinking about product market fit in terms of can I get a product out there that's used by a large constituency of users? It's not 10 or 20. It's probably hundreds, thousands, maybe hundreds of thousands of users that start the flywheel going. And then the question is, is how do you capitalize on that with, you know, more of a top-down, I call it self-serve versus sales-serve in those environments?
3:20 Peter Levine? And we're seeing more of that now.
3:22 Speaker 01 I think we're actually talking about the same thing.
3:24 Peter Levine? Okay.
3:25 Speaker 01 When we looked at a bunch of companies that had sort of won their first 15, 20 customers, either through going direct to employees, bottoms-up or tops-down, the ones that did unlock growth, they were able to define their go-to-market playbook, which is what are the repeatable steps for how they find and win customers over and over and over and over and over and over and over and over again? And having your repeatable playbook applies whether it's tops down or bottoms up. That's an excellent point.
3:55 Hanne Tidnam? I mean, I think what you're both saying is really interesting is like, once you get that started, whether you get it started from bottoms up or from top down, there's this moment where you can kind of stall out, right, and get stuck, or you can get things in motion and start growth going. And that moment of getting stuck, I just want to back up for a second and like zero in on that.
4:12 Speaker 01 Right.
4:13 Hanne Tidnam? What, what does that tend to look like? Like where does, where do people tend to flounder there and like not kind of kick into gear? You know, you've got, you've finally got product market fit, but then you just stall out. What does that actually look like?
4:25 Speaker 01 It's kind of funny, actually. You sort of see this in the conversations, you know, between entrepreneurs in Silicon Valley, which is, hey, we won our first customers. And they sort of get told to go figure out this sales stuff, go figure out this go to market stuff. And it was not a very organized conversation around, well, what does that mean? There's a number of reasons why growth never really unlocks. It can be founder selling. It can be not finding urgency. It can be spreading your resources too thin. One of the places where I see these companies stall out is they had founder selling to be able to get to their first 10, 15, 20 customers. And then we start to add salespeople that go to market model. They find, oh, wait a minute. A regular sales or marketing person can't actually do what the founder was doing. So, you know, people look at it, oh, maybe
5:09 Speaker 01 our, our sales team or marketing people don't really understand the product. They can't sell it. Like you end up in these sort of dysfunctions because I think it didn't really have sort of the true market test of have you figured out how to find and win customers without relying on the founder? That's usually the first place I see things stall out is sort of over reliance on founder selling. The second one is trying to do too many things at once. Trying to do two or three go to market models at the same time. We're going to do tops down. We're going to do bottoms up. We're going to do framing. We're going to do market led. And when you have relatively small number of resources, they end up scattered so far that you never actually really figure out what the repeatable recipe is. So you end up spending an enormous amount of energy with a very little result.
5:52 Speaker 01 So being able to pick your model and focus matters. The third place where I think people stall out is they think that they know their passion for whatever their initial idea was and may not necessarily be the thing that actually unlocks growth. There's sort of a funny story we have from the early days of Mobile Iron, which was, we were early in mobile security. And when we first started, we built this
6:19 Speaker 01 Security and policy engine for any mobile operating system. So enterprises could adopt mobility as a first-class citizen. Yay, we're really proud of it. The really forward-thinking, advanced customers would get it, but a lot of them were just sort of look at us and be like, why do I need that? And we weren't able to translate that into what's the problem that got the customer to say, okay, I need that right now. And eventually what we did is we figured out that that problem was, dude, I need help with my iPhones.
6:46 Hanne Tidnam? And that's the urgency.
6:47 Speaker 01 And that was the urgency.
6:49 Peter Levine? I think there's one other related piece with founders selling, which is a very interesting point because we always encourage founders to go out and sell.
6:58 Speaker 01 It's super important from a learning perspective.
7:00 Peter Levine? To learn.
7:00 Speaker 01 Absolutely.
7:01 Peter Levine? And then, you know, this, this whole notion of the continuance of founders selling. The founders of our companies tend to be technical, technical founders.
7:12 Speaker 01 Right.
7:13 Peter Levine? Right?
7:14 Speaker 01 Yep.
7:14 Peter Levine? And they're so intimate with the product and the features and all that. And often they view sales as a bit of a black box. In my experience, the growth kind of stops when they try to run sales too much and kind of get involved in an area where they have not a lot of experience. Right? And then kind of, you know, hiring the sales VP or sales leader becomes a bit of an issue. And then the founders trying to micromanage the sales leader because...
7:44 Speaker 01 By saying, just do what I do.
7:46 Hanne Tidnam? I'm stressed out just thinking about it.
7:48 Peter Levine? You know, and, and then the sales leader doesn't quite work out and you have to fire people and like it creates a, you know, a lot of turmoil within the organization. So it's really like this whole founder selling and then transitioning to a repeatable model, i.e. no founder selling. I mean, you can help out, but not founder-led selling is a really interesting transition point. We, I mean, we see that quite a bit where... You know, it's like it's kind of muddled up in there.
8:21 Hanne Tidnam? Are you going to be able to hand the baton to the machinery?
8:24 Peter Levine? And do you have enough knowledge to actually go and manage the things that are important without getting overly involved, right?
8:31 Hanne Tidnam? It sounds very much like this moment of reckoning, right? Where you're about to go into this and you talk about it like this, that this moment of reckoning is sort of a missing link that people don't talk about, right? You call it go to market fit.
8:42 Speaker 01 Right.
8:43 Hanne Tidnam? So my first question about that is, how many people even recognize that it is a moment of reckoning like that? Or did they just kind of, is it just, you just sort of slide into it and then you're either in it or not?
8:54 Speaker 01 You typically slide and fumble your way into it. Where the light bulb usually goes off that people feel like, oh, we may not have figured out our repeatable go to market model is you win your first 15, 20 customers, maybe with founder led selling, and you say, all right, we've figured out product market fit. It's time to grow. So the board comes in and says, okay, you figured out product market fit. It's time to grow. Go do sales. Go hire VP of Sales. Go sell. And so you go hire three or four people, your burn rate goes up, you put together some PowerPoint pitches, and then you wake up six months later and you went from 20 customers to like 24 or 25. And your burn rate accelerates and everybody's looking at each other really stressed out.
9:35 Speaker 01 And it's a really scary moment for a company to sort of say, all right, we just hit the gas to go grow, but we didn't actually really have our repeatable go to market model figured out. So that's usually when the reckoning comes.
9:50 Peter Levine? You know, also when that reckoning moment comes, and I've seen this many times, you're also, the company is also debating, is it a sales problem or is it a product problem? You're trying to understand, like, maybe the product that I've built really isn't, doesn't solve, I love this urgency concept, doesn't really satisfy the urgency of the customer. And so. Where, what are the levers that you pull at that particular point in time to self-correct? Is it a product problem or is it a go-to-market problem, right? And, you know, clearly over-hiring salespeople and all that are symptoms of something, right? Maybe you can't reproduce the founder selling products, great, but I can't reproduce the selling.
10:34 Peter Levine? Or the product isn't hitting the market or whatever, the only, and it's kind of a blended problem. Yeah, it's a knot.
10:42 Hanne Tidnam? I mean, how do you start analyzing and pulling apart the knot before, presumably before you start building?
10:47 Peter Levine? Well, look, all these things are presumably somewhat self-correctable, provided that you have enough runway to go self-correct this. I mean, there's no substitute for awesome product-market fit. And some companies nail it right away and other companies, you know, start in one place and migrate to another. The problem is, is if you run out of runway, i.e. cash, you don't have time to figure it out. So one of the elements is that before a company goes and hires, you know, to Bob's point, the VP and, you know, once you hire a sales VP, what do they want to go do? Hire a bunch of reps. So now you have all this expense without knowing the urgency or what's actually going to work.
11:32 Peter Levine? When I was CEO, I was, I used this phrase with my team. I said, "We're not going to, we're not going to expand the sales organization till we see the whites of their eyes." And I don't know if you remember like bunker hill, right? You only had a few bullets to shoot. And you weren't instructed to not shoot the bullets until you saw the whites of, you know, the eyes coming over the hill. And it's, you know, some subjectivity here to say, "Look, when the customer starts demanding this, then we're going to go build a sales organization, right? And then, or add the reproducibility." And I waited, I waited for what some people could argue is too long a time.
12:17 Peter Levine? But I think we, we over-rotate too soon to go build up all this capacity.
12:24 Hanne Tidnam? Yeah.
12:24 Peter Levine? And all this, you know, customer support and marketing and sales and all this stuff.
12:31 Peter Levine? When there's no customer ready to actually go buy it.
12:34 Hanne Tidnam? I mean, what you're basically saying is wait until the urgency is painful.
12:38 Peter Levine? Wait till the, exactly.
12:39 Hanne Tidnam? Yeah.
12:39 Peter Levine? Wait till you feel it.
12:41 Hanne Tidnam? Yeah.
12:41 Speaker 01 There's a, there's a really interesting dynamic here, which I see, you know, and we even felt this, which was that, hey, you've figured out your first 10 or 15 customers, go hire sales. And that's sort of the meme that gets out there. Wait a minute, is that what we really need to do? And I think one of the mistakes is go hire VP of sales. That's what the first thing you need to do when you go sell.
13:00 Peter Levine? Right.
13:01 Speaker 01 My personal opinion on that is that's not the right thing to do. You need to find, like, go hire more of like a Davy Crockett type, sales rep that can sell, but also has a little bit of product and product marketing in them. Because really, what you're still trying to do right there is find your path through the go to market woods. And to have it be done by a sales rep or somebody that's not the founder. I think that's really step one, because that's the same way you iterate on a product to find product market fit. You need to iterate on your go to market and your pitch. And what's the urgency and what's the sales model the same way?
13:39 Speaker 01 And you need to iterate with those one or two sort of Davy Crockett type people that are able to help you find the path.
13:47 Peter Levine? I mean, I've, the sales videos that I've done, we, we point to this concept called the sales learning curve, which Mark Lesley developed, which talks about the Renaissance sales rep in that early phase. They typically have a combination of technical skills and sales skills. And they can do a lot of things. They're kind of like a Swiss army knife of a sales person.
14:09 Speaker 01 And they ask customers, hey, what about a problem right here? What about a problem right there? They look a little bit to the left, they look a little bit to the right.
14:15 Peter Levine? Figure things out. You want to hire a couple of those people, you know, early on to help figure things out.
14:22 Hanne Tidnam? Okay, so say you have this reckoning and you say, and you think, okay, shit, I gotta figure this out. What if you have already hired a VP of sales? Like, how do you, how do you kind of pause and then go forward saying, okay, now we're going to systematically figure this out?
14:36 Speaker 01 Maybe the question is, how could we help avoid the reckoning?
14:38 Hanne Tidnam? Aren't you saying it comes inevitably?
14:40 Speaker 01 No, I don't think it is. I think the way to avoid that really painful like, oh crap reckoning is as you shift off founder selling and iterating on your product, starting to be thinking your background about how do we iterate on go to market? The same way you iterate on product and you're looking a little bit to the left or a little bit to the right for the urgency. You're trying to figure out like, do you go in bottoms up or you come in tops down? Do you figure out your sales model? This is something that I got horrendously wrong as a first time CEO is that I thought like having a go to market playbook essentially meant you have a really good PowerPoint pitch and some good sales tactics.
15:18 Speaker 01 And that was horrendously wrong because your go to market playbook really is paying attention to how you're able to find customers, move them through the buying journey, what's working, what's not working and how you ultimately get them to decide and onboard and use your product. And your early customer wins, the universe is teaching you a lesson. So pay really close attention to those first 10 or 15 or 20 wins to not just did you win it or not? But like, how'd you get there? What was the journey? And how can you start to get insight from that to figure out the repeatability? Really pay attention to what's the repeatable playbook and observe and iterate on that. Then you can avoid that reckoning moment because you start to see these pieces come together.
16:01 Speaker 01 And you start to see the whites of their eyes. That's when you know, okay, it's time to hit the go button and shift from sort of Davy Crockett to like Braveheart or Joan of Arc.
16:11 Hanne Tidnam? And is that, is that when you know you've found the right go to market fit?
16:16 Peter Levine? You know, when you're out of this sort of conundrum, when you actually have reproducibility from a sales capacity standpoint or some reproducibility from a pipeline to conversion standpoint, right? When you're out of it phase is if I hire a salesperson and they cost X and it takes Y time to generate Z revenue. And if I can then put, literally put on a spreadsheet and say, I'm hiring one rep, two reps, three reps, four reps, and they can reproduce what's on the spreadsheet. That's the reproducible model.
16:55 Hanne Tidnam? Yeah, now you're moving the flywheel.
16:56 Peter Levine? Right, the flywheel is going and you can predict, you really at that point can start to predict the future.
17:03 Hanne Tidnam? It sounds like you can start to trust a little bit, like relax into trust a little bit from that.
17:09 Peter Levine? There really are those reproducible models and even if it's bottoms up and it's not hiring somebody, it may be I have these leads that come into a marketing program. Turns into 100,000 users and those 100,000 users, 5% of them pay. And that's the model and I convert after three months of use. And so those metrics all have shapes to it, right? The pipeline has a shape to it on sort of freemium. Sales reps have a shape to it on onboarding. And there are industry standards on all of this, but every company will have its own shape.
17:44 Hanne Tidnam? Yeah.
17:44 Speaker 01 Yeah, this idea of how do you know you've found it and you're out of it? I think is a really profound question. At the essence of this repeatability is if you hire somebody new in sales, do they know what to do? Like if you have go to market fit, you've got urgency, you've got your sales model, you've got your playbook. You can hire somebody new in sales. They kind of know what to do. You can be like, do this and we win. It's like you bring in more people or add more resources, you kind of know what to do. And I think that's really sort of the essence of this test, which is if you have that, I think you're out of it. And when you do that, you start to put more into the engine and you feel that momentum of that repeatable go to market. And you go from winning five customers to 10 to 20 to 50, 100 to 500.
18:27 Hanne Tidnam? What other kinds of metrics are you looking at to help you define that we're now out of the woods? You've found this go to market fit and you're actually hitting real gas instead of flooding the engine?
18:36 Peter Levine? There are measurements that are, I believe are very important. One of the key metrics for me is, you know, how do you know you're in what we call execution mode? This kind of rinse and repeat on the sales model.
18:52 Peter Levine? What I like to look at is that a salesperson is generating greater than three times their loaded cost, meaning base plus commission. Let's say a salesperson costs $500,000 a year or $200,000 a year. They need to generate a 3X multiple on that cost. And it needs to be across the organization. You can't just have one person do it and it can't just be the average because that's a very misleading indicator. I could have one sales rep who crushes it and everyone else does zero. And if I average that, I would say, well, yeah, our 10 people are all over the 3X metric, but it happens to be one person.
19:36 Peter Levine? So I would do it as, you know, 70% of the sales organization need to be generating 3X their base cost. And that's how you know you're sort of out of this phase. And then that's also a way of knowing when you should hire more people because as that number gets greater and greater, let's say a salesperson can generate 5X their cost or 6X their cost, you're hiring too slowly. So there's more, there's more deals that that person can hire and you're probably leaving things on the table. So you want to normalize between four to five, you know, around 4X their loaded cost and keep an eye on that. If it's too little, you probably have over hired, right?
20:21 Peter Levine? Where a person only is generating 1X and that's probably in the early days. So that's kind of, that's a metric that is very important in terms of, and it's very simple, right? Like it's not this complex, like.
20:33 Hanne Tidnam? Yeah, you can remember that formula.
20:35 Peter Levine? Yeah. It's just, and it tends to work reasonably well.
20:38 Speaker 01 If you think about sort of the end to end sales and marketing process, do you see as you invest more in the front end of the pipeline, you get more leads and more pipeline? Like as you put X dollars in, you get Y out? Like is it still linear or even getting better than linear? Or are you starting to see decreasing marginal returns? That's sort of a, sort of a way to know how hard to push the gas pedal. When it comes to thinking about hiring reps or sales engineers, it's really all about ramp time. Do your reps reach full productivity in nine months, 12 months, six months, or three months? The moment for me when I knew at MobileIron, we had found go-to-market fit was when my VPS sales came in and said, hey, I'm willing to take up
21:23 Speaker 01 my quota, basically as, as high as you want because I know, as long as you let me hire as many reps as I can, because I can get them productive in six months and I have so many opportunities, I can't get to them.
21:38 Peter Levine? Right.
21:39 Speaker 01 He felt like he had a repeatable recipe to bring new reps on and make them productive and get them ramped in six months. That was the point where for me, like the bit flipped. We were sort of out of the woods.
21:49 Peter Levine? One of the other elements to look at is pipeline itself. One of the metrics to be used in the industry is at the beginning of the quarter, you want to have between three and five times the pipeline to close the quarter. Okay. If you don't have four times the pipeline at the beginning of the quarter, you're not going to make your number. And if you have over at the beginning of the quarter, beginning of the year, might have been a six, seven, eight, which means that you're dropping opportunities on the floor because the top of the pipeline is fat with opportunities and you don't have enough capacity to go and do it, right? And so looking at that pipeline is also another way
22:32 Peter Levine? to kind of help modulate how you're going to go hire salespeople to either, you know, take up the slack, meaning get after more opportunities, or don't hire so many people if the pipeline isn't there yet. It sounds like temperature reads almost. Keeping the metrics very simple is way more important than having too many metrics and then you're trying to measure too many things. We want to measure everything, right? And it gets too complicated and then you don't know exactly what to fix.
23:01 Speaker 01 The fascinating thing that happens is once you get this repeatable playbook in place where you find and win customers and you sort of, people know what needs to be done at each part of it. All of a sudden, the company now sees the things they're working on, the people in marketing, the people in engineering, the people in support that are working on these different things that support the go-to-market playbook, they now see how what they're working on ties to the repeatable go-to-market playbook. And it was, I didn't sort of realize this going into this, but that turned out to be a very powerful sort of unifying force for the company to know how, what they were working on tied to how we're going to grow the business.
23:38 Peter Levine? Yeah. And once you understand that, then you're out of this sort of mode of, well, iterating, go to market and all that stuff. And then you can grow from there. Now, let me point out that if I enter into a new geography, or I build another product as part of the company, you start over again. Let's say a US geography and I want to expand internationally. Maybe my go to market model is actually different. It very well could be. I may be direct in the US, but I might go through the channel in Europe.
24:10 Speaker 01 Exactly.
24:11 Peter Levine? In which case I have to learn that over again because I haven't learned it. Or, you know, I'm doing partner selling or whatever it might be. So that's another point of how do you know you're out of it? A company might get into it again when you build a new product or go into a new geography.
24:29 Hanne Tidnam? So if we go back to that moment of trying to find with a Davy Crockett, like feeling your way through the woods to the right sales model, getting, gathering information, what are some of the questions you're asking at that point to find and identify what the right sales model is, especially if you're that founder who doesn't really know who, for, you know, it is a kind of black box?
24:46 Speaker 01 Yeah, this is a, this is a great question because there's all sorts of different types of sales models you hear about. And there are certain sales models that are kind of faddish that get pushed on you. Like this is in vogue right now. Oh, like, you know, a freemium sales model is really exciting. So you should definitely do that. Or, you know, you should follow Atlassian's model and have the no salespeople product led model. Like you hear about all these different things as a founder and a CEO and you're honestly like, how do I figure out which ones to do? So if you sort of think about sales models as a spectrum, on the far left, you have heavy touch sales lead, which you hire sales reps to call on customers to do big deals. In the middle, where marketing does the front
25:29 Speaker 01 end of the sales process, they find prospects, they drive them to an online eval, and then you watch the metrics on the online eval and then an inside salesperson calls them and takes the deal from there. So it's like 50 50 marketing sales. And then on the far right, you have a product-led or zero-touch sales model where there's no salespeople and literally the customer goes from find to eval to online to purchase to upsell without a sales rep. So like an Atlassian or Twilio.
25:58 Hanne Tidnam? We talked about this on a podcast recently on the enterprise podcast about bottoms-up growth. Martine used a metaphor of a slider bar, right? There's a slider bar from total organic bottoms-up growth up to like heavy touch. And where are you?
26:10 Speaker 01 How do you figure out where you are in there?
26:12 Hanne Tidnam? How do you know where you are?
26:12 Speaker 01 Yeah, and this is something I've certainly seen to the venture capital industry push companies to sort of the zero-touch product-led model because it's awesome if you can make it work because it's super capital efficient. The problem is that it doesn't work for all companies and products. So the most important thing here is to pick the right model for your product and your customers. So then how do you do that? If you pay attention to how your customer buys, like what does that customer journey look like? That will lead you to one sales model or another.
26:42 Hanne Tidnam? For example?
26:43 Speaker 01 You can distill it all down to one question, which is how does the customer decide to buy your product? How do you decide to buy? Not how do they physically purchase it? It's how they decide in their mind to say, I'm going to buy. If the buyer and decider are the same person and you can reach them with digital marketing, you can do a product-led, Atlassian, Twilio sales model. If the product and buyer are sort of two people that are right next to each other, like the buyer is the VP of Marketing and the decider is the CEO, you can do a marketing-led sales model where it's relatively small number of people involved. If it's a committee decision where you'd have the CIO, the Chief Security Officer, the VP of Infrastructure involved, it's really hard to do a marketing-led or product-led
27:28 Speaker 01 when you have a committee decision. As you're winning those early customers, pay attention, like watch the cognitive process inside those customers for how they're actually deciding to buy. I think that's the biggest clue to where on that slider bar you end up. They're correlated with big-sized, small deals. But I think the essence of it is actually this, how does the customer make the mental decision to buy?
27:50 Peter Levine? I might add one more element in, you know, sort of the individual being the buyer and the decider in one person versus committee.
28:01 Peter Levine? I mean, in some ways, the product itself has to be simple enough. If it's an individual person, it has to be easy to understand. If you have a super complex product, going after the individual, their head might spin because it's like, how do I even think about, you know, it's super complicated to use. It's complicated to try, complicated to install. How complex is your product to allow the decider to do it with whatever vehicle you're actually explaining those features, right? The real exciting element to me is it was always assumed, oh, enterprise, direct sales, because the product is complicated, blah, blah, blah.
28:43 Peter Levine? And consumer products would be this, you know, sort of viral uptake, decision makers, the buyer. I think that there is a lot of really interesting innovation in ease of use for enterprise products that are now being decided and bought by individuals. Zoom is a great example. GitHub is a good example. Twilio is a good example. Dropbox is a good example. There are historical products which were super complicated in each of those areas, where you required an army of deciders and an army of salespeople to get some like, what does this thing do and all that stuff? And how does it work? And I think that companies now who take user interface and design and simplicity of
29:28 Peter Levine? product in the enterprise are going to be big winners. You can't just say, we're going to go to do this, you know, Atlassian bottoms up model, but does the product have the elegance to be able to be sold without a sales organization? Enterprise companies actually are looking a little bit more like consumer companies when it comes to product design, fit and finish and all of that, which before they, you know, was like, hey, like if I had a command line interface, that's enough with a thousand, a thousand page user manual.
30:01 Hanne Tidnam? Right.
30:02 Speaker 01 I think this is where this sort of go to market fit and all these other like link and go to market and product come together. It used to be that product was sort of over here and did product stuff.
30:12 Peter Levine? Right.
30:12 Speaker 01 And sales is over here.
30:13 Peter Levine? And then you throw it over the fence.
30:14 Speaker 01 That was product management's job to figure out the middle.
30:17 Peter Levine? Right.
30:17 Speaker 01 What's really neat about this is you will start to see iterations between how does the go to market Put requirements on the product and then how does the product influence the go to market? There's an iterative loop between those now that I think is actually in many ways sort of changing almost the cultures of how enterprise products get built.
30:34 Peter Levine? I agree.
30:35 Hanne Tidnam? Okay, so you mentioned these very specific, this very specific moment when you know you, your metrics, your product is dialed in, you have a repeatable go to market strategy, you've picked the right business model. What are some of the like whoops, don't step in that? Like, okay, I got it. Good. Don't do this moment. The biggest pitfalls, basically, that you can come to.
30:54 Speaker 01 Yeah. So the, you know, in the beginning of building a startup, your mission is just don't die. It really is just live to fight another day. When you find go to market fit and you start to feel that momentum, the world changes. You shift from this, how do we not die mode to, oh crap, how do we win? And you've really entered a different mindset. Once a company makes this shift from how do we not die and how do we win? All hell breaks loose. And at this point, your mission becomes how do we now accelerate the business to become a category leader? So you have to go from being sort of ruthlessly frugal, pinching every penny and counting every nickel to almost like calculated recklessness. Where you're going to try some things and spend some money on things and hire some
31:37 Speaker 01 people, even though you're not sure it's totally going to work. And that's a hard mindset shift for founders. The second thing that changes is the company culture, which is that usually up until this point, you've been a very product led culture. And that's part of like what has made the company successful. But now as part of accelerating to category leader, the company needs to have a balanced culture between valuing both product and go to market as equal citizens in the culture. And those kinds of culture shifts are actually hard for teams. It's a journey. And you know, this manifests in all sorts of ways, like just hiring. All of a sudden, you have recruiting becomes a core competency for the company. Finding
32:18 Speaker 01 talent becomes a core competency. Managers are now evaluated for how well they can hit hiring targets because that's the biggest thing that's going to get in your way of execution. And then how do you actually onboard all these people and make them effective and part of the culture? Because what actually happens at this point is you can end up fracturing the culture of the company. And in many ways, sort of committing hairy carry by growing too fast without actually onboarding people effectively.
32:43 Peter Levine? At that point, one of the key attributes of one of the key, it's not the only one attributes of being a great CEO and great leader. Is hiring and retaining a world-class management team.
32:54 Speaker 01 That is exactly right.
32:55 Peter Levine? What I see is sub-optimizations made or just not, not having enough pattern matching skills to actually go recruit the right people for the right roles. And I think that that then results in suboptimal executives kind of not all being great at what they do. And then you run into problems that way because scale, scaling the organization is about having reproducibility and being able to hire people, being able to build processes into the organization. And if the executive team can't handle it, they're not capable of scaling, you run into other, you run into a lot of problems.
33:34 Speaker 01 Yeah, I think that's exactly right. I mean, for me, I was a first-time CEO in 2008 and my job changed profoundly. It was more like from Captain America and sort of the platoon in the woods to more like Captain America and the Avengers, where you had to go hire your band of Avengers, where each one of your executives has to have a special superpower that's better than you are at that job.
33:55 Hanne Tidnam? Or that you did not have.
33:56 Speaker 01 Or that you did not have at that job.
33:58 Hanne Tidnam? You have the self-knowledge to know you didn't have.
33:59 Speaker 01 So in many ways, this hiring the leadership team that Peter's talking about is a tough transition for the CEO because the CEO has to let go of things that he or she was previously doing, that they may think are important and are scared of. It's also sort of creates some insecurity because all of a sudden you hire these people who are great A executives that join. And the first thing they're going to do is basically look at all the things you've been working on and basically look at how screwed up they are and their job is to fix them. It creates this weird feeling of sort of insecurity, calling your baby ugly. But I mean, if you hire a great A VP of Sales, they're going to absolutely push you and the rest of the organization as they try and drive to scale and it's going to be uncomfortable. And if it's not, you may have not hired the right person.
34:44 Hanne Tidnam? So it sounds to me like so much of what you're describing is about this ability to kind of look around you and notice, right? What's, learn from it and then shift mindsets or mechanisms or, you know, plans for the future based on that. So it's, it's kind of about flexibility, right? How do you stay in that mode as the company grows and evolves? And you are constantly being forced to sort of examine and then shift?
35:12 Speaker 01 I think self-awareness is incredibly important because you constantly need to be reflecting about what are I and what are we doing well and not well? And what do we need to get better at? We spend so much time learning and in many ways, the very things that make us successful in getting from A to B. For instance, getting through the survival phase of the company. Many of those same things actually now get in the way or could kill you at the next stage. So in addition to learning what you need to do next and how to be a leader at the next stage of the company, there needs to be a very conscious effort to look in the mirror and perhaps unlearn some of the things that got you there.
35:50 Peter Levine? I often describe running a company at different phases and your ability to turn the ship kind of like a rowboat versus a ship. When you're a small company and you're like in this little rowboat and one big wave can sink you, you can use the oars and turn the thing on a dime. And then your boat gets bigger and bigger and bigger and it's way harder to turn. And think about a big company, they're like a freaking cruise ship, right?
36:20 Hanne Tidnam? Yeah.
36:21 Peter Levine? And to turn that thing, you have to start two miles ahead to turn it. So what does that mean in terms of running a company? To me, the horizon by which you look at as a CEO gets farther and farther out.
36:33 Hanne Tidnam? That's so interesting.
36:34 Peter Levine? In terms of planning, right? Like if your company is reasonable size, there's almost nothing you can do this quarter to change the outcome of this quarter. You're not going to do like, maybe you can help with a sales deal or whatever. It's probably like, what can I do now to impact next year? If you're real small, what I do today can impact tomorrow. There's always new projects and new things that are the little boats that may surround the big boat. You know, in which case you can do things much more nimbly. If it's the big thing, it's hard to go and change on a dime when things are generally going in some direction, right? CEOs and this whole self-awareness should be aware
37:17 Peter Levine? of kind of the time horizon by which I'm operating at and where my influence can most adequately be impacted, given that horizon.
37:28 Hanne Tidnam? And when you need to pull out your telescope, basically. That's wonderful. Thanks so much for joining us on the A16Z Podcast.
37:35 Peter Levine? My pleasure, our pleasure. Thanks, Bob.
37:37 Speaker 01 Thanks.
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