Dave Kellogg: How to Forecast in 2024 & Why CaC Payback is Flawed and CAC Ratio is Better | E1110

1. 0:00 – 1:04

   Intro

   1. HSHarry Stebbings0:00

      We've seen this explosion of AI sales tools. (graphics pulsing) How do you advise SaaS founders?

   2. DKDave Kellogg0:05

      Get out there and know you're playing musical chairs, and when the music stops, you're either gonna be a player or not. (coins clinking)

   3. HSHarry Stebbings0:09

      This is Dave Kellogg. He is the executive in residence at Bolderton Capital, and one of the best SaaS expert and strategic advisor in the field.

   4. DKDave Kellogg0:17

      The low-hanging fruit on efficient growth is a dispassionate, calm analysis of (cash register ringing) what sectors do we sell to? There's a lot of just good old-fashioned analytics, and so much of SaaS success is based on this, Harry. You just have to ask the question, "What's working?" And then double down. (graphics whooshing)

   5. HSHarry Stebbings0:31

      What worries you most in SaaS today?

   6. DKDave Kellogg0:34

      Subscription pricing. (graphics beeping)

   7. HSHarry Stebbings0:36

      Why? (cymbals clanging)

   8. DKDave Kellogg0:36

      'Cause I think... (graphics whooshing)

   9. HSHarry Stebbings0:40

      Dave, I am so excited for this. I always learn so much from our discussions. I got so many messages from our last show years ago from people who literally stopped to take notes, which I think is probably one of the biggest compliments a podcaster can get. So thank you for joining me once again.

   10. DKDave Kellogg0:55

       Well, it's great to be here, Harry, and it's great to see you again. And congrats on all the success.

   11. HSHarry Stebbings0:59

       Ah, that's so kind. It's so lovely to see you again. I do wanna ask, for those that do not know the Dave

2. 1:04 – 7:00

   Kellogg's Career Highlights

   1. HSHarry Stebbings1:04

      Kellogg brand, what would you say is the career highlight, what you're best known for to date?

   2. DKDave Kellogg1:09

      Sure. I'm probably best known for one of two things. Uh, operationally, being the CMO of BusinessObjects for nine years as we grew from 30 million in revenue to a billion in revenue. Uh, not market cap, but revenue. Um, then from 240 people to over 4,500 people. So that was probably my biggest operating accomplishment. But I have run two companies, one from zero to 80 million after that, and I've, uh, run another one from eight to 50 and sold it. But, uh, but the biggest one has gotta be the BusinessObjects run.

   3. HSHarry Stebbings1:36

      I mean, I, I, I love that clarification of revenue, not market cap, as well. Important in all markets. (laughs) Uh, knowing, knowing all you know now, before we dive in, what, what do you w- know now that you wish you'd known when you started your career in SaaS?

   4. DKDave Kellogg1:50

      Well, that's a tough question, Harry. Um, for me, (clears throat) I'm not sure how applicable this is gonna be to everyone in the audience, but, but power. I never really understood power. If I could go back in time 20 years and just say one word to myself, it would be, "Understand the power structure of corporations." Um, 'cause I, I tend to be a call it as I see it always kinda person. (laughs)

   5. HSHarry Stebbings2:11

      (laughs)

   6. DKDave Kellogg2:11

      With kind of blatant disregard for power structure, and, and that has got me in trouble over the years.

   7. HSHarry Stebbings2:16

      That's so intere- wha- what can one... why is it important to understand? 'Cause I'm the same as you. I'm incredibly direct. I always think, you know, it's better to be clear and direct upfront. Can you unpack the importance of understanding power, just so I understand it?

   8. DKDave Kellogg2:30

      I, I think for me, Harry, it, it was... 'cause I'm something of an idealist. I, I always thought that kind of being right would win in the end. Like if you had the best argument, you would win, always. And by the way, I'm a pretty good arguer and I won a lot. (laughs) But, but it's not always the case, right? Sometimes you, you need to... an- and this, by the way, is why I spent most of my career in marketing, not sales, right? The first time I had a quota, I was a CEO, right? I, I didn't know a lot about sales. That's what I'm talking about. Spent a lot of time supporting them. But, but let's be clear, I'm coming at it from the marketing perspective. And I think the difference between a salesperson and a marketing person i- is I tended to be more theoretical. What is correct, what is right? Whereas a seller is reading the room very closely. Wh- who cares about what, who has what interests? So, so I had some famous board conflicts. I, I mean, Bernard probably should have fired me at least four times at BusinessObjects. I would've fired me. (laughs)

   9. HSHarry Stebbings3:18

      (laughs)

   10. DKDave Kellogg3:19

       At least, in hindsight. So, so yeah (laughs) .

   11. HSHarry Stebbings3:22

       I, I, I love that. Uh, listen, I wanna start on where we're at today. Everyone seems, in SaaS, to be saying, "Well, budgets are all centralizing. They're going back to the CFO, and the CFO's not buying." I'd love to understand, how do you think about efficient growth and what it really means to you today?

   12. DKDave Kellogg3:39

       So, so certainly, it's tougher now than it's been with, with the CFO doing their best to, to keep budgets under control. I think for a SaaS company, e- efficient growth, to me, it ultimately means... I mean, our metrics person, you know that. We gotta look at our CAC and our CAC payment period, and see how much we're paying for a dollar of growth. And the easiest way to do that is to go understand what's working. There's, there's a lot of other ways we can do experiments, but, but the low-hanging fruit on efficient growth is a dispassionate, calm analysis of what sectors do we sell to with the higher win rate, with the faster sale cycle, with the better ASP, with the higher NRR? There's a lot of just good old-fashioned analytics you can do to say what's working. And so much of SaaS success is based on this, Harry. You just have to ask the question, "What's working?" And then double down.

   13. HSHarry Stebbings4:26

       Okay. Question. How do you have an... how do you know when you have enough data to know what's working? Like if you have a million in ARR, y- you know, you work with, say, Bolderton who invested at the series A, um, and a lot of series As are pegged at like a million in ARR. Is that enough data to know what's working? Or is it 10 million? Can it be 100K ARR? When is that point of, "I have enough to know"?

   14. DKDave Kellogg4:47

       Yeah. One of the reasons I like working with smaller companies is it's a mix of art and science. 'Cause w- by the time you're at 300 million or 500 million, it's, it's just a math problem. (laughs)

   15. HSHarry Stebbings4:54

       (laughs)

   16. DKDave Kellogg4:55

       But, but, but when you're, you know, one million, it's very difficult. So, so to me, I mean, my, my line... On- one day I'll do a blog post on this, is, is an I- ICP, ideal customer profile. I- ICP starts out as an aspiration, and over time it becomes a regression, right?

   17. HSHarry Stebbings5:10

       (laughs)

   18. DKDave Kellogg5:11

       And what does that mean, right? It, it means in day one, it's an aspiration. We want to sell to companies who look like this. We think this buyer will buy us to solve this problem, right? So company-buyer problem. That's the aspirational phase of the ICP. And by the time you're s- you know, 100 million in ARR, it's, it's a regression, right? We just look and say, "Okay, who, who expands the most? Who sells the fastest? Who has the highest win rate, right?" So, so you're along that continuum.

   19. HSHarry Stebbings5:36

       I, I, I, I totally get that. (laughs) can I ask, what should founders be looking to achieve to know if they have that efficient growth? When you look at that segment of the audience, what should they be looking to achieve to know they have efficient growth versus not efficient growth? You said that like, you wanna know what's working.

   20. DKDave Kellogg5:51

       Yeah.

   21. HSHarry Stebbings5:52

       Are there glaring signs of not efficient growth?

   22. DKDave Kellogg5:55

       Sure. I mean, let me do the glaring signs of not efficient growth first, like a CAC payback period of over 24 months, maybe over 36 months, where at some point VCs won't call you back. That was always my joke. (laughs)

   23. HSHarry Stebbings6:05

       (laughs)

   24. DKDave Kellogg6:06

       You talk to a VC and you say, "Hey, my CAC period's 30... my CAC payback period's 36 months." They're, "It's so nice to meet you, Harry." (laughs)

   25. HSHarry Stebbings6:12

       (laughs) But does that, does that matter? Okay, I'm just pushing you.

   26. DKDave Kellogg6:16

       Yeah. Yeah.

   27. HSHarry Stebbings6:16

       Does that matter if your LTV is eight years?

   28. DKDave Kellogg6:18

       Well- well- oh, darn, you beat me to it, Harry. Yes, that's gonna be the question w- which is, what you pay for something should be a function of what it's worth, right? It's that simple. So- so- so I don't love it, that's why I was trying to pick kind of an egregiously high CAC where- where it's high enough that at some point in 36 months I might not actually care what your LTV is. I mean, I do know companies, I just talked to one yesterday that does like 10 year contracts with big insurance companies. Okay, (clears throat) so they might be an exception, right? 'Cause all their customers are in the last 10 years. But the answer is very much what you pay should be a function of what it's worth, a- and therefore I can't make a hard and fast rule. I do think somewhere around 24 to 36 months people stop calling you back, so you have a different problem, right? Doesn't matter how good your story

3. 7:00 – 11:48

   CAC Analysis

   1. DKDave Kellogg7:00

      is if you don't get the meeting.

   2. HSHarry Stebbings7:01

      Does the good payback period depend on the ACV size? And so if you are selling, I don't know, A 100K ACVs, it should be a much smaller payback or shorter payback than if you have longer ACVs? Or is it actually pretty much the same?

   3. DKDave Kellogg7:17

      So I think CAC period, uh, to- to- to be clear, CAC period is not my particular favorite metric here. I- I like the CAC ratio the best. I know a lot of VCs are very focused on CPP. Uh, I like CAC ratio because it's simpler. Uh...

   4. HSHarry Stebbings7:29

      What- what's- what's CAC ratio for- for me and-

   5. DKDave Kellogg7:31

      Sure. CAC ratio is just sales and marketing expense divided by new ARR. So- so in English it answers the question how much do you spend to put a dollar of ARR in the bucket? So in- in my mind it's the purest measure of sales efficiency 'cause- 'cause VCs got- God bless you all, tend to like compound metrics 'cause you're in screening mode, right? And in screening mode, if the CAC payback period's 48 months, I don't need to meet these people, and I don't care why, right? (laughs)

   6. HSHarry Stebbings7:56

      (laughs)

   7. DKDave Kellogg7:56

      Right? It's a- it's a great screening metric but, but if you're actually trying to fix things, right? I- I- I want to look more granularly. So- so CAC ratio does not include gross margin, for example. If I want to know what your gross margin is, I can ask you what your gross margin is. Where- whereas if I just want to know what do you spend to put a dollar in the bucket? I'm not, it, without asking what happens to it once it's in, that- that's the CAC ratio.

   8. HSHarry Stebbings8:17

      Can I ask you, you said that the sales and marketing, uh, you know, divided by the, you know, net new revenue. Um, you can always fudge numbers. We see numbers get fudged a lot. Is there a way to fudge the numbers that you put in in terms of those sales and marketing? Oh, ah, that one doesn't count because of X or actually for founders trying to understand this, is it a very simple one?

   9. DKDave Kellogg8:38

      Yeah. Well first the other reason I like simpler metrics is there's less to fudge. Let's be clear. So- so you- you're gonna find me a big fan of simple basic metrics 'cause there's fewer kind of cheat dimensions. I could cheat, yeah, on- on CAC ratio. I mean popular hacks include, uh, excluding the cost of customer success, um, another popular hack is let, is using gap sales commissions which get amortized which are gonna understate sales commissions so they really should be done on a cash basis. I'm not too sure this-

   10. HSHarry Stebbings9:09

       So you should incl- you should incl- you should include sales commissions and customer success in that sales and marketing CAC ratio.

   11. DKDave Kellogg9:15

       Correct. And you shouldn't amortize the sales commissions. You see the, I can't remember the term for them, but not capitalize them, expense them. Do- do them on a cash basis, probably the best way to say it.

   12. HSHarry Stebbings9:23

       Wow.

   13. DKDave Kellogg9:23

       Right? 'Cause it- 'cause it's asked now with ASC 606 in the US, you spread them out over the life of the contract whi- which kind of greatly understates them.

   14. HSHarry Stebbings9:31

       What's a good CAC ratio then?

   15. DKDave Kellogg9:33

       I'd say 1.5 or less is in Enterprise, but here we are back to your question, but the bigger the deals the more permission you have so in Enterprise I might go 1.5, in SMB I might go 1.0. And the- and the presumption there is that Enterprise is bigger deals, longer lifetimes, and that SMB flips faster so you can afford to pay less.

   16. HSHarry Stebbings9:50

       And the joys of being a VC like I am today, Dave, is I can ask really stupid questions and it's kind of my prerogative. Uh, (laughs) what are the- CAC 1.0 or 1.5, that means, sorry, that for every $1.00 in you get five out? That means...

   17. DKDave Kellogg10:05

       So a CAC ratio of one means you spent $1.00 in sales and marketing, put $1.00 of ARR in the bucket. Now you did a little sleight of hand on me a minute ago, I didn't want to raise it but you said net new ARR, that, and you've definitely transitioned to VC, because a- as a VC that's what you care about. You care about how much did I spend to make the water go up by $1.00 in the bucket. As an operator I'll actually just do a new ARR. My first order CAC is just, it's not net new 'cause net new introduced churn. You just made my metric more complicated, right? You- you made it easier to cheat. You- you took away some of its meaning. It's what you care about as an investor, but I- I did a talk once, Harry, I can't remember where but it was on operator versus investor view of metrics, and I get why the investors look at what they look at, but- but if you want to know what I'm spending to put a dollar in the bucket, you should just do new ARR not net new 'cause now net new's, net new's now bringing into question what happens to ARR once it's in. And if you want to know sales and marketing efficiency, right, you didn't ask about kind of overall produ- productivity or-

   18. HSHarry Stebbings11:00

       I get-

   19. DKDave Kellogg11:00

       ... businessability or gross profit.

   20. HSHarry Stebbings11:02

       I get you, but for someone who wants to understand the trage- trajectory and health of the business, net new's better, no? 'Cause new, yeah, I could be adding one and losing 10.

   21. DKDave Kellogg11:10

       Yeah, well so... (laughs)

   22. HSHarry Stebbings11:10

       It would be a bad investment.

   23. DKDave Kellogg11:12

       (laughs) Yeah, you're definitely a VC, Harry. Um, yeah, it is 'cause you want, 'cause you want to understand the health of the business, I want to know if sales and marketing is broken and just say it's a crappy product, I might be able to pour water in the bucket for $0.80. Right? I may have fantastic CAC ratio but horrific churn or horrific gross margins, and that's gonna show up in other metrics. It'll show up in CAC payback period, it would show up in net new CAC. By the way you can calculate new ARR CAC or net new ARR CAC. There's a lot of ways to see it, but I- I like what I call atomic metrics 'cause I'm looking at one thing, it's harder to cheat, I know exactly what I'm looking at, and if I have a different question

4. 11:48 – 14:40

   Investment Metrics Analysis

   1. DKDave Kellogg11:48

      I'll ask a different question.

   2. HSHarry Stebbings11:49

      Can I ask what other ways to investors kind of bastardize metrics? You mentioned it there but the most common that you see. Again, I want to be the best investor I can be, Dave. Like, really teach me. (laughs) That's why I love my job.

   3. DKDave Kellogg12:01

      Yeah. Yeah, I mean, you've- you, we've stumbled into my favorite example which is CAC payback period, it's- it's a compound metric that if done on a net new ARR basis it- it's looking at gross margins, it's looking at sales and marketing efficiency.... uh, it's looking at churn, right? It's looking at everything. So it's a great screening metric. Don't get me wrong here. If I were screening companies, uh, I would, I tend to want to use compound metrics. The more I'm trying to fix broken things, the more I want atomic metrics. The CAC ratio is another one. We hit it, but- but the purest form to me is just how much does it for a dollar of new ARR. You can do it on a gross margin basis. You can do it on a net new ARR basis.

   4. HSHarry Stebbings12:41

      Do CACs get better or worse over time? I'm constantly struck by this because you can think in the early days, actually it's cheaper to acquire them because they're the most aligned customers to your product, they feel the need the most. But then you can also think, actually, over time, they get cheaper because you have brand marketing, word of mouth, virality. D- from your experience, do CACs go up or down over time?

   5. DKDave Kellogg13:01

      So my experience, they should go down. Um, startups have this tendency to believe in what I would call the low-hanging fruit problem, which is, oh darn, the CAC has to go up over time because we picked all the low-hanging fruit, all the easy customers we found up. Um, and there are fewer competitors on- on the wor- on the search terms that we pay for. And look some of this is true, I'm not gonna deny that. But I-I think most startups, when they make that argument to me, I think they're vastly underestimating the size of their market. That if you have a really, really big market, that- that you haven't picked all the low-hanging fruit. So- so I- I personally think it's kind of a cop out, but like I will accept that as a problem. If somebody's CAC is going up and they say they picked all the low-hanging fruit, I will eventually accept it, but not in the first round. I'm gonna say, "Show me that, show me the data, show me why you believe that 'cause you're a five million dollar company." And it- it's a 10,000 foot tree.

   6. HSHarry Stebbings13:52

      (laughs)

   7. DKDave Kellogg13:52

      (laughs) And- and- and I just don't believe it. Um, so- so I tend to be a contrarian.

   8. HSHarry Stebbings13:57

      I- I have to ask, you said about NRR earlier.

   9. DKDave Kellogg14:00

      Yeah.

   10. HSHarry Stebbings14:00

       For those that don't know, can you explain NRR before we dive into this?

   11. DKDave Kellogg14:04

       Sure. NRR, net, uh, retention rate, it's a metric that measures, in my mind, what happens to ARR once it's in the bucket. So- so CAC is how much does it cost to pour stuff in the bucket? Churn is how fast does stuff leak out of the bucket? NRR is what happens once it's in the bucket, the way you calculate it typically, it's, uh, wha- th- and this is gonna get controversial, but in my mind, the official definition, by Dave Kellogg's official term, is, uh, basically take a set of customers from one year ago, take their ARR a year ago, put that on bottom, take their ARR today, put it on top, divide the two, and that's NRR.

5. 14:40 – 18:21

   SaaS NRR and GRR Dynamics

   1. DKDave Kellogg14:40

   2. HSHarry Stebbings14:40

      Got you. Okay. You said before though, that actually we need to focus on GRR also. And I was like, huh? I- again as an investor, I'm trained on NRR. What is GRR and why should we focus a lot on this also?

   3. DKDave Kellogg14:54

      Sure. So GRR is gross retention rate, and it's basically NRR before expansion. So if we go back and take that year ago cohort of customers, and we put that at the bottom, their ARR value, but on top, rather than putting their current value inc- their current value just boom what it is today, you exclude expansion. So you're only counting shrinkage. So the theoretical maximum GRR is 100%. NRR varies anywhere from 105 to 120 up to kind of snowflake levels at 160. Uh, but GRR usually varies between I'd say 70 and 100, 80 and 100, uh, but- but theoretically could never be greater than 100.

   4. HSHarry Stebbings15:32

      So what's good NRR in your mind, and what's good GRR? Just so we have a benchmark.

   5. DKDave Kellogg15:37

      Yeah. This has changed. S- so, if you'd asked me two years ago, I would have said 120. If you wanted to have it at an NRR that people go, "Yeah, that's good," uh, 120 would've been it. I think it's closer to 108 today, if I had to just pick a number. It's come down-

   6. HSHarry Stebbings15:52

      108?

   7. DKDave Kellogg15:52

      ... with the downturn. Yeah, 108, 105. I want to see a 105 to 108, in that range is- is what I see. Um, it's credible-

   8. HSHarry Stebbings16:01

      And that's 'cause- that's 'cause- that's 'cause the increased churn levels we've seen with buyers?

   9. DKDave Kellogg16:04

      Yeah, it's 'cause of the downturn. Most of that is driven by increased shrinkage. Yeah.

   10. HSHarry Stebbings16:09

       Is that- is that increased churn, or is that lack of expansion?

   11. DKDave Kellogg16:13

       I think it's increased churn most of the time. Uh, when I look at companies it's usually increased churn. But they- they're still expanding reasonably well. I mean, I've seen companies where it's both. Um, then by the way, if- if you asked, like the most recent study I think said 105, and the reason I said 108 is I just can't make my mouth say 105. (laughs)

   12. HSHarry Stebbings16:29

       (laughs)

   13. DKDave Kellogg16:31

       But- but- but I- I think it may have come down from 120 to 105, to be honest. And I think it's through a mix of increased churn and decreased expansion. And I think increased churn is leading the list.

   14. HSHarry Stebbings16:42

       Yeah. Yeah, are we seeing the changing structure of SaaS companies today? Because I- I spoke to Henry Schuck at- at ZoomInfo, and he was like, "Before, everyone used to come back and just upsell and expand their seats. Now, not only are they not upselling, we're fighting to keep them as customers, and so we're having to create basically data teams to prove the value that we're doing, providing, just to keep them as customers." Are you seeing incredible pressure to prove value for existing vendors? And are we seeing changing structure of SaaS teams to prove that value?

   15. DKDave Kellogg17:20

       Absolutely. Um, I mean, CFOs are trying to reduce SaaS spend, right? Right, I mean, S- SaaS spend ended up being kind of a sprawl, that there are now ve- e- ve- say there are now vendors whose mission it is to drive your churn, right? (laughs) They're kind of SaaS spend rationalization vendors. Um, so- so yes, it's the short answer. Renewals are not a given. Getting four or five percent increase, not a given. I mean, you- you're lucky to get 95, you know, n- you're lucky to get 95 to 100 cents on a- on a dollar order, right? People are f- pe- they're trying to cut their budget, right, not grow it. So that pressure does show up in renewals. Not surprised at all. Uh, he talked about creating data teams to prove value, because, uh, these renewals are not easy to get. People are doing rebids, he didn't mention that, but they'll just bake you off and say, "Hey, you know, we've decided to rebid the work. So you guys are a nice vendor and there's some switching costs leaving you, but we're doing an evaluation and one of your competitors will do this deal for- for 80 units a year and you're charging 500."... right? And, and you may have to cut your

6. 18:21 – 24:32

   Importance of CS Teams

   1. DKDave Kellogg18:21

      price to 90 to, to keep that customer.

   2. HSHarry Stebbings18:23

      What are the best customer success teams that you see today doing to manage in what is an incredibly turbulent and stressful time?

   3. DKDave Kellogg18:30

      I mean, first, that they're not getting slootened, or, or, or blowed up. (laughs) So, so, if you're not careful, right? I mean, let me go back a little bit. A lot of CS teams forgot what their job was, and those people are getting blown up. Um, that they decided their job-

   4. HSHarry Stebbings18:45

      How did they, how did, how did they forget what their job was, Dave?

   5. DKDave Kellogg18:47

      You know, I've seen this happen to companies, and it's just painful, um, that somehow they decide they're in the customer satisfaction business and the customer love business, and they end up kind of hand-holders, grief counselors. They, they, they end up just being the customer's kind of hug buddy, like, "Oh, things aren't going well, give me a hug, and I'll talk to you about your problems." The, and, and that doesn't work, right? Uh, there's no, there's no value out there. Sometimes they end up being advanced tech support, which adds value, but, but the question is, should, should we just create a premium support package and sell that, right? Should it kind of be free? But it, sometimes it sends up sales. To me, there's three roles. There's kind of the, the huggers who, who just give you a hug and can't really do anything other than commiserate, there's the tech support people who probably should be premium support package, um, and then there's the sellers. Who, who basically, I like to define customer succ- success by how you introduce yourself to the customer, and I think the best introduction is, "My name is Dave. I'm your account manager. My job is to get your renewal and grow your account. And anything I need to do to do that, please let me know. I'll be doing quarterly health checks and I'll be checking in, but my job is to, is m- m- basically, I'm going to be asking you for money."

   6. HSHarry Stebbings19:54

      Do you think we should get rid of CS teams? And the reason I say that is because as you ... I mean, I just had Chris Degnan on the show, who's the CRO at Snowflake and has been since day one. Um, you know, he, he said, "I got rid of CS because," as you said, "technical support is very valuable, but we have that in, you know, professional services."

   7. DKDave Kellogg20:11

      Yep.

   8. HSHarry Stebbings20:12

      So if huggers are not useful and the others should be professional services, is there a room for CS in modern SaaS companies?

   9. DKDave Kellogg20:19

      Yeah. Personally, I think there is. Um, I think it ... Look, if you, if you do 100K, 500K, million-dollar deals, and you have big accounts and grow 'em, then maybe not. Then maybe you can push back to sales, right? 'Cause I, I've worked at companies ... When I ran MarkLogic, I had a rep in the ... one, one account. They're an $80 billion company, they had one account, NSA, and their job was to grow NSA, right? When my first sales call at Salesforce, I went to Qualcomm, the rep, one account, Qualcomm. My job is to grow Qualcomm. So, so when you're doing real enterprise, I, I, I don't think if you have one account that you need the CSF, right? (laughs) You could do that on your own. So, um, the less you look like that, the more I think you need CS. So, so I think CS should exist. I'm a big believer in CS. I just think it needs to understand that it's a selling role. My j- I'm going to ask you for money. My job is to get your renewal. So, so I want to talk about that. And if you have tech support question, I'll connect you, right? If you need professional services, I'll connect you.

   10. HSHarry Stebbings21:15

       Should you be that upfront? And does that not add an element of transactionalism to what you want to be a trusted relationship of alignment?

   11. DKDave Kellogg21:22

       I think it is a trust relationship, personally. I would be p- potentially contrarian here, Harry, but I think the most honest thing you can do is tell people what your job is and how you'll measure it.

   12. HSHarry Stebbings21:29

       Totally, but then, but then you're not necessarily aligned, because you want to squeeze every dollar out of me and upsell me as much as possible. And that may not be in my interests always. Like, you will try and sell me more seats than I maybe need.

   13. DKDave Kellogg21:41

       Well, that's a good point, Harry, actually, 'cause, 'cause I wanna argue, m- my self introduction, we can go listen to the tape, but hopefully I said, "My job is to get your renewal and to expand you." My primary job is to get your renewal. So, so if I'm actually not here to upsell the heck out of you, in my mind, the upsell should be split across sales and CS, a- and I've got a portfolio of you, so I don't need all of you to expand at 120%. I need some of you to expand a lot, and some of you just to stay on as customers, right? So, in fact, I don't think the mission is to squeeze every penny out of the customer. I think the mission is keep the other ... keep the customer happy, get them renewing, and spot upsell opportunities. So, so, so to me, it's slightly different.

   14. HSHarry Stebbings22:19

       What do you mean when you say that upsell should be split between sales and CS? Because normally, it's put in one bucket, for sure. It's either sales or CS.

   15. DKDave Kellogg22:27

       Yeah. And in my mind, and this is, again, kind of a minority viewpoint, but I just think that creates a lot of unnecessary conflict. 'Cause th- soon as you do that, now they're fighting over whose order it is.

   16. HSHarry Stebbings22:35

       Mm-hmm.

   17. DKDave Kellogg22:35

       And, and let me just give you ... There's what I call a fries with your burger upsell, right? Anybody could do it. "Harry, you want fries with your burger," right?

   18. HSHarry Stebbings22:42

       Yeah.

   19. DKDave Kellogg22:43

       And you go, "Yeah," right? "Do you want five more seats? And hey, we got this add-on product." Let the CS person do that. Why am I taking a 300K a year enterprise seller and having them do that order a- and ... So, so my answer is, if you credit both of them on the upsell, and the math will work, we can go through it if you want to. But the math works that you could credit both of them, and that way, the work flows where it needs to work or t- needs to be done. So, so if I'm the enterprise seller and I care about my productivity, and I've got a CSM who I trust, and there's some fries with your burger, "Hey, go ahead and get that one." By the way, more importantly and conversely, say there's a cross-sell and it, it's not looking like fries with your burger. It's looking like selling, uh ... Like for example, at Whozt Analytics, we sold planning and consolidation. Consolidation is sold to a different buyer, same boss, same CFO, different buyer, different competitors, right? If I'm the CSM and I find a consolidation opportunity, I, I should call my seller and say, "I, I found a cross-sell of the consolidation module. Can you please do this?" And I don't want to incent, right? The single biggest sin in SaaS is putting your farmer against someone else's hunter, right? 'Cause they will lose.

   20. HSHarry Stebbings23:47

       What do you mean by your farmer against someone else's hunter? The people using them?

   21. DKDave Kellogg23:49

       Sorry, sorry. So a lot of people use the SaaS, uh, analogy of hunters and farmers, that the, the salespeople are the hunters, they go out and kind of kill new accounts, they're very aggressive, right? They're bringing food back, you know, for the other people to eat. And the farmers are the, the CSMs, that, that they've gotta just farm the land and keep the accounts and keep 'em warm and nice. Um, and it's not a bad metaphor. And all I'm saying is, you don't want to put your farmer against someone else's hunter, right? I.e., do you want your CSM trying to sell that consolidation deal against a one stream rep who sells consolidation for a living, who's really good? Your person will probably lose. You get on sports, they always talk about a mismatch, right? You're always trying to t- up, and it's the same thing. We, "Ah, we've got a mismatch here. We've put an enterprise rep up against a CSM." Uh, so, so, so get the ball to the enterprise

7. 24:32 – 31:18

   SaaS Team Incentives & Churn

   1. DKDave Kellogg24:32

      rep 'cause he's gonna win.

   2. HSHarry Stebbings24:33

      I always think about that. I think it's Charlie Munger or Warren Buffett, one of the two, said, you know, "Show me the out- show me the incentive and I'll show you the outcome."

   3. DKDave Kellogg24:40

      Yeah.

   4. HSHarry Stebbings24:41

      What's the right ins- incentive structure for CSM teams today, do you think?

   5. DKDave Kellogg24:45

      Yeah. It makes it difficult, Harry, beca- 'cause it m- my thinking resolves a lot of conflict. It makes that question somewhat difficult. I think the right incentive is to give them a portfolio and say, "I want this portfolio to be worth 105 units. It was worth 100 on the day I handed it to you. I want it to be worth 105 or 110 a year from now. And how you get that is up to you. How you spend the time is up to you. And you get to use the sales rep who's going to pay you both on any expansion. So if you need help, you ask for it."

   6. HSHarry Stebbings25:11

      Can I... As a founder today, when we think about CS teams and expectations of them, how do we approach churn analysis? And what I mean by that is, like similar to sales forecasting, ch- churn forecasting is really hard right now. How can I think about churn forecasting accurately and plan ahead of time?

   7. DKDave Kellogg25:31

      Churn forecasting to me is actually easier than new sales forecasting. I, I think new sales forecasting is really hard 'cause, 'cause you're in a bake-off against multiple people. P- if they're a sophisticated buyer, they're deliberately denying you information. They're not gonna tell you you're in first place 'cause they wanna negotiate the best price, right? In an enterprise, there's a lot of different constituents. No one may actually even know who's winning, right? Because the VP of sales wants this, the VP of finance wants that, CFO wants this, there's committee, right? So, so I think the hardest thing is new sales forecasting, which we can talk about if you want. I think chur- personally, I think churn forecasting is relatively easy. Why? First, 'cause you can look at product u- usage data, right? So, so, so you have a massive advantage in terms of data, right? Like, are they using the thing? Is the usage going up or down? Can I see anything in the usage pattern? Are they, are they dumping a lot of data out of the system, right? Is there, is there... Are, are there any signs that they're actually spinning up one of my competitors in the background, right? Wh- which you could find. You also have relationships. And usually, if you're a good CSM, part of that job, I've been honest with you about my role, be honest with me. Are you guys thinking about switching or are you spinning up an eval? Right? So, so I just think CS for... I am... If a VP of sales misses their forecast, I'm somewhat understanding. To me, it's, uh, um, I'm not very sympathetic to a VP of CS who misses their forecast because how is it that you didn't know? I mean, you better show us a record of the customer absolutely lying to you, like a bunch of emails saying, "We're gonna renew, we're gonna renew, we're gonna renew," and then they don't. And if you have that paper trail, then okay, I guess you were really misled. But otherwise, I just don't think it's as hard.

   8. HSHarry Stebbings27:01

      So, if churn forecasting is actually more science and there's data that makes it very evident, how do you think about sales forecasting? 'Cause this is a hard one in 2024. How do you think about sales forecasting? And an advice to sales leaders approaching it today with 2024 ahead.

   9. DKDave Kellogg27:16

      Triangulate. If I had one word, it would be triangulate. Um, and what does that mean? I- it means, you know, if you're lost in the woods, right? You say, "Oh, there's a mountain this way, there's a mountain that way," right? You're taking shots trying to figure out where you are. You can do the same thing with sales forecasting. Uh, what do I mean concretely? First, make your own official forecast, which you will make. Then look at the sum of your managers, look at the sum of your EPs, look at the sum of the reps, look at the stage-weighted expected value, look at the forecast category weight of expected value, look at the week seven conversion rate if you're in week seven. There's so many numbers you can look at. And you should try to view each number as an independent shot as to where you are. This also has implications, by the way, on operations because if a sales manager tells a rep what their forecast is, you're undermining this process. I'd like a rep's forecast to be what they think they're gonna do. And I'd like the manager's forecast to be what they think the sum of their reps will do. But at some companies, managers kind of muscle reps. Yeah.

   10. HSHarry Stebbings28:12

       So for me, as a sales manager, I should say to my team of reps, "Go away, look at the accounts that we have, look at pipe, and come back to me with, with targets?" How should we approach that?

   11. DKDave Kellogg28:22

       Yeah. Put me a forecast every week. Basically, that's what I would say. Ev- every week, every Sunday night, I want you to put into a Google Sheet or the CRM system your forecast for the quarter, and want to watch how that number changes over time. And I want it to be your forecast for the quarter is the main point here.

   12. HSHarry Stebbings28:36

       What does a good forecast look like? And what does a bad one look like?

   13. DKDave Kellogg28:40

       So, so a- soon as you do this weekly approach, you now get to look at the shape of the curve. An- and a good forecast looks like this, gently up sloping to the actual number you sell. Notice I never talked about quota, 'cause forecast is not about quota. That, that eventual what you sold may be well above your quota. It may be well above your quota, but you didn't ask what a good sales performance was. You asked what a good forecast was.

   14. HSHarry Stebbings29:00

       Yeah.

   15. DKDave Kellogg29:00

       And a good forecast is gently up sloping, landing at the number that you actually sell because that means I'm not misleading my boss. In an aggregate, we're not misleading the company about how much we're gonna sell. We're always slightly low-balling it, right? If it's super low balled, it's very hard to run the business. The more common problem, if it's super optimistic where, "I'm gonna sell a million, I'm gonna sell a million. Just kidding. I sold 300K," right? It's impossible to run the business.

   16. HSHarry Stebbings29:25

       Should forecasts always be slightly unachievable? Should you always be 70% of the way there, 80%, but never quite there? How do you approach that?

   17. DKDave Kellogg29:33

       So a forecast, in my mind, it's a very important point 'cause, or at least the other thing I said, a forecast in my mind is your prediction as to what you're gonna sell for the quarter, period. Some sales managers... He- here's the thing that I think is the worst thing ever for forecasting. "Harry, how much are you gonna sell?" You go, "100." I go, "Come on, Harry, you can sell 120. What about the Jones deal?" "120." "You can do 120. Step up, man up. Come on, Harry." Uh, and you say, "Okay, I can sell 120." Right? They say, "Good. I'm gonna write down 120 for your forecast." Right? That 120 is a useless number for predicting the business, right? And, and this is where some sales forces, some sales managers use the forecast as a club to kind of push the reps around. Like, if I could just in a moment of weakness get you commit to 120, then I can hold it against you for the rest of the quarter. First, I don't think that's great sales management, but you have other guests you can interview about that. I know it's bad forecasting (laughs) . I don't, I don't want that 120 number. I wanna know the 100 number 'cause that's what you thought you could sell before you were twisted.

   18. HSHarry Stebbings30:29

       Do you not think you're just getting the best out of the reps by pushing them? Like, everyone has a stretch.

   19. DKDave Kellogg30:34

       There's a lot of talk about that. I've worked for bosses and very successful people who think you always keep the carrot, you know, in front of the donkey, right? So you're never happy. You're always wanting a little bit more. Personally-As you know, Harry, I, I, I grew up in enterprise software. I started at the bottom. I think it's a terrible way to be managed, so I've never wanted to manage people that way. You... 'cause basically, you're constantly failing, right? Um, so in... particularly for forecasting. There's no way to forecast. So, so all, all I'm saying is, when you make your forecast, just write down what you think you're gonna sell. And then I can have a different conversation about, "Harry, why can't you sell more? I think you can sell and..." but it's not about your forecast. That, that's already been sent off to finance.

   20. HSHarry Stebbings31:15

       That's motivation from a, a leader or someone higher

8. 31:18 – 39:51

   Sales Team Management

   1. HSHarry Stebbings31:18

      than you in the chain, so to speak. A lot of people say that you should hire reps two at a time, so that they kind of have a Hunger Games to compete, so to speak. Do you agree with hiring reps two at a time, especially in the early days, or actually, do you-

   2. DKDave Kellogg31:32

      Yeah.

   3. HSHarry Stebbings31:32

      ... feel that it's over-hyped?

   4. DKDave Kellogg31:34

      So, I, I like hiring three at a time, um, uh, but not for the Hunger Games effect, for the, uh, the, the controlled experiment effect. Because if I think a rep of a certain profile with a certain background, right? So, you worked at Salesforce for five years, you've sold CRM, you've done deals in 50 to 100K, and you've sold to Fortune 500 companies. If I think that profile is the one that's gonna work for me, selling to banks in New York, I'd like to hire three of them. Um, why? 'Cause I want a good experiment. 'Cause if I hire one and they fail, what do I know? Maybe I got an outlier. Maybe I got a clown, right? Uh, I... if I'm trying to grow a business, I, I would say your job in the early days is to run good experiments. Um, and it means if it works, we know what to replicate, and if it fails, we know what not to do. And when you hire modulo one, you don't, you don't get that. Even modulo two, you don't get... if I had three of them, and they all looked really good on paper, and they had that profile, and all three fail, I'm pretty... like, let's not do that again. (laughs) And conversely, if it works really well, like, hey let's go get six more. Let's get nine more.

   5. HSHarry Stebbings32:32

      Dave, how fast do you know if a rep's not good?

   6. DKDave Kellogg32:35

      Yeah. That's a really hard question. Um, I would say somewhere between 6 and 12 months in enterprise. Um-

   7. HSHarry Stebbings32:40

      Whoa. That, that long?

   8. DKDave Kellogg32:41

      Well, in enterprise, I did say, 'cause, 'cause you got six to nine-month sales cycles, so, so it's hard.

   9. HSHarry Stebbings32:46

      Could you do... well, well that... but that's on converted sales. Like, you... a month in-

   10. DKDave Kellogg32:50

       Oh.

   11. HSHarry Stebbings32:50

       ... you can be like, "Hey, show me what you've got." And you can go, "That pipe is not great. The number of calls-"

   12. DKDave Kellogg32:55

       Parked it.

   13. HSHarry Stebbings32:55

       "... you've had in the last week is not great. The call-"

   14. DKDave Kellogg32:58

       Got it. Right.

   15. HSHarry Stebbings32:58

       "... notes are not great."

   16. DKDave Kellogg32:59

       Got it. Yeah, yeah, yeah. You, you, you... I guess the, the word that got me was no. (laughs) 'Cause I only know once I've seen what they've done. Uh, I can guess. I can have a feeling about it.

   17. HSHarry Stebbings33:09

       Do you not think you know from the call notes, from looking at pipe, from looking at how they spend their time?

   18. DKDave Kellogg33:15

       Look, look, if I wanted an indicator... let me, let me answer the question constructively. I'd listen to call recordings, or go on calls with them. That, that's a very important data point, and you could tell pretty quickly if you think this person's doing the right thing. I- and as usual, I'm gonna give you the opposite case, Harry. The hardest case is not firing somebody who's not selling. That's easy. The hardest case is keeping somebody who's not selling. And if you haven't listened to calls, you can't do that. But, but look, I, and I'll give you a concrete example. At MarkLogic, we sold most of our sales in two verticals: media and government. But I had reps outside those verticals. That was hard slog. You had no support from the company, no reference customers. I could have fired every one of those reps and we never would've sold anything, 'cause they couldn't sell anything, right? So, every year, I had to look at it and go, "You know, Mike, I've listened to your calls, I've been on calls with you. I think you're doing the right stuff. And you came in at 80% or 70%. I might even give you extra money to keep you around, 'cause you're doing the right things. And I know you're doing the right things, 'cause I'm close enough to you to know that."

   19. HSHarry Stebbings34:11

       Right.

   20. DKDave Kellogg34:11

       So, that's the hardest case, and that's... zero to one, you gotta do that, Harry. It, it's... any client can fire... at a big company, you have 100 reps, and you gotta fire the bottom 20%, that's easy. What, what's hard is knowing, when you have three reps, who do you keep and who do you fire? And when no one's selling. (laughs)

   21. HSHarry Stebbings34:27

       O- okay. So, we do the call recordings. That's one way of, like, reviewing. When we think about, like, sales reviews, how often... we're an, uh, early stage company, and when we think about the audiences, mostly 100K ARR or to 10 million ARR, 'cause not actually many companies beat the 10 million ARR. Uh, when we think about that as a range, how often should the CEO/sales leader be doing sales reviews?

   22. DKDave Kellogg34:50

       In my world, there's three different types of calls. So, let me just define what I think the calls are. There's a forecast call, there's a pipeline scrub, and there's a deal review. Purpose of forecast call is to come up with a forecast. Should be all numbers. The... one of my signs to fire a sales manager is a forecast call that's all storytelling. "Oh, I talked to Joe, and Joe talked to Mary, and Mary said this." But I didn't ask you that. I asked how much are you gonna sell this quarter, right? So, so that's forecast call. Pipeline scrub is all about scrubbing the four key value seals of an opportunity, value, close date, stage, and forecast category, right? So, let's validate those, validate those are real data. Um, and the deal review is, is, is to me, a very collaborative exercise, where we get as m- many people who want to come, and we say, if you're the rep, Harry, "How are we gonna help Harry win this deal? Harry, tell us everything about this deal, and let's help you win." So, so I don't... when you say sales review, I'm not sure what you mean. If it's one of those three things, I can talk. Otherwise, you gotta define it for me.

   23. HSHarry Stebbings35:45

       I would say a sales review in terms of the third and final one.

   24. DKDave Kellogg35:48

       So, 'cause to me, a lot of people use sales review as a scary, mean thing. And, and this is why I like my framing of it. It's not scary at all. We're trying to help you win. So, tell us everything. It's your peers, it's your bosses, it's the CEO. And by the way, if you're talking about... 'cause you meant... you, you mentioned some pretty big deal sizes there, Harry. And if you're a small company doing 500K or million-dollar deals, and at MarkLogic we did those, I would always think, how could I ever explain to the boss if I... the, the board, if I wasn't in the million-dollar deal, right? If, if, if we had a five or a $10 million quarter, and there's a million or a $2 million deal, and the board says, "What went wrong?" And I say, "I don't know. You need to ask Joe," (laughs) right? That's a terrible answer. So, so as a CEO founder, I think you just need to look at the materiality of the deal to the quarter. And, and, and like, are you, uh... what's the word? Negligent in your duties. Like, at some level, if the deal is material to the quarter, you better be in it, in, in it deep. And that's not just a deal review. That's meeting the customer. Have you flown out, talked to them? Do you know the names of the people? Um, 'cause that, that's what it is to do big deals.

   25. HSHarry Stebbings36:50

       You know, I, I sit in many board meetings, and often they have the heads of sales there, and we say, "Well, why did we miss numbers?" And they go, "Ah, you know, the Jones' account, the Jones acc- it just slipped into next quarter, next quarter it slipped." Uh, and I'm kind of left there going, "Okay, what, what do I say to that?" Like, what's a good reason to let an account slip into next quarter versus not?

   26. DKDave Kellogg37:16

       I think there are almost two types of companies, those where slip is an acceptable thing, and those that aren't. Because at some level, I mean, let me just be a, a jerk for a minute. Okay, wait a minute, you don't make the software, so your only job is to sell the software. You're not a technical resource, you don't help customers deploy, so there's kind of the you had one job argument. (laughs)

   27. HSHarry Stebbings37:35

       (laughs)

   28. DKDave Kellogg37:35

       Right? Like, you had one job, um, and that, it was like, let's just remember, that's what you do in sales. So I'm not super sympathetic to slipping, right? As part of your one job, you're supposed to tell me how much you're gonna sell and when. And so, th- so I start with a pretty hard position. Um, let me just go in order. That's the first thing, which is my philosophy is not, "Oh, slips happen, you know, oh, inevitable." No. It's your job is for not to be having this conversation. So I'm immediately unhappy. The, the next question is, how much slipped into this quarter? 'Cause people love to be asymmetric, love to say, "Oh, yeah, we made the quarter except for this deal that slipped out." I'm like, "Well, that's funny 'cause 2 million slipped in" (laughs)

   29. HSHarry Stebbings38:13

       (laughs)

   30. DKDave Kellogg38:13

       "that should have been made last quarter." So if we're gonna do this slipping game, let's do it in a symmetric manner 'cause I've noticed your tendency is to only wanna kind of artificially pull things in, like count the first week of next quarter, you know, week 14, uh, of the quarter, or as they say, you know, day 366 of the year, right? No, that doesn't happen. The last point I'd say on slips is that i- on a given deal, I'd ask why. And it, for me, the, here, let me give you an example of an invalid excuse and a valid excuse. Invalid, the purchasing agent was on vacation. Well, gosh, nobody could have known that was gonna happen, like we could not have called, like here's, I make a thing called the close plan, and that's actually one of the questions. Who is gonna sign the document? Whose name is gonna be on the ink on the document? And are they around that week, right? And you can make a list of those questions. By the way, everyone should have a close plan, and every time you hear one of those excuses, it should go onto the close plan. You know, his uncle in Toledo got married and now, or whatever it is. But we're never gonna let this happen again. So your job is to get the paperwork by midnight on the last day of the quarter. And so anything about, we didn't know this or we didn't know that, or another popular one, "Oh, at the last minute there was a committee that needed to approve it." You had one job. Your job was to know about the existence of that committee. Did you ask the buyer if they'd ever done a deal this size? Well, I asked them if they did a deal before, but the biggest deal they did was 200K, ours is 500K, that required extra level of approval they didn't know about. Your job was to know that, right? Put that question in the close plan, um, to make sure we never get bit by that again. So, so in general, I'm pretty unsympathetic, Harry.
9. 39:51 – 43:12

   Sales Closing & Buyer Talk

   1. HSHarry Stebbings39:51

      this. (laughs)

   2. DKDave Kellogg39:52

      (laughs)

   3. HSHarry Stebbings39:52

      Uh, close plan. Uh, I don't hear people talk about that often, Dave, uh, (laughs) -

   4. DKDave Kellogg39:56

      Yeah.

   5. HSHarry Stebbings39:56

      ... having a few laughs with the sales leaders. Uh-

   6. DKDave Kellogg39:58

      Yeah.

   7. HSHarry Stebbings39:58

      ... when should we create a close plan? Should I-

   8. DKDave Kellogg40:01

      Yeah.

   9. HSHarry Stebbings40:01

      You know, wha- when's the right time? What, what are the standard steps? Are they standard? And how do you think about good versus bad close plan?

   10. DKDave Kellogg40:08

       So to me, the close plan is the, i- i- in some ways it's the anti-slip plan, right? It, it's the list of things we need to know to make sure we can close the deal this month. So, it, it's not strategic, and in my mind it's a list of answers to questions like, what day is the deal gonna close? Who's gonna close it? What committee needs to approve it? Do they have budget authority? What's the pro- do we understand the process for getting budget authority? Like, to, to a certain extent, just think of a close plan as a list of questions that over time you build every time a deal slips, and, that, that you could have known about. Like, by the way, I should give you, to be nice, I'll give you a valid difference. The company got acquired on the last day of the quarter, all purchasing got frozen. Okay, right? That we couldn't have seen coming, right? But it needs to literally be that level of act of God, right? Before i- i- it's, uh, before it's an excusable reason for a slip. But, but back to the close plan, I, I can go dig one up and share it with you later, but it's just literally all the stuff that can go wrong as you're ... it, it's super mechanical. Like-

   11. HSHarry Stebbings41:08

       Can I ask-

   12. DKDave Kellogg41:09

       Yeah.

   13. HSHarry Stebbings41:09

       ... have you, have you ever shared one publicly before?

   14. DKDave Kellogg41:11

       Never. No, I've not.

   15. HSHarry Stebbings41:13

       Would you do it with the show?

   16. DKDave Kellogg41:15

       I could, I could clean one up, yeah. It would take me a half an hour, but I'll, I'll go and optimize it.

   17. HSHarry Stebbings41:19

       I wo- we- we- we-

   18. DKDave Kellogg41:19

       I actually can send you a real one from 2005 or something. (laughs)

   19. HSHarry Stebbings41:22

       I, I, I, I think it would be a phenomenal resource that so many sales teams would love, in terms of a template of like, actually, what are those questions? 'Cause a close plan that misses two of the questions that you think are crucial is useless because then they could be one of the two and the close plan doesn't work.

   20. DKDave Kellogg41:38

       Yeah.

   21. HSHarry Stebbings41:38

       So I'd love that and I think so many people would. Um, so that'd be fantastic. Um, i- is that okay?

   22. DKDave Kellogg41:46

       Yeah, absolutely.

   23. HSHarry Stebbings41:47

       Um, so that, like, that, that's, like, crucial. How do you think about buyers exaggerating? (laughs) And what I mean by that is, every buyer says, "Oh, I'm the, I'm, I'm the buyer. Yeah, yeah, you're speaking to the buyer." How do you know if you're really speaking to a buyer, Dave?

   24. DKDave Kellogg42:02

       I'm a big believer in a, in a semi-obscure sales metho- methodology called Selling Through Curiosity by Barry Rhein. And i- the whole first principle of Selling Through Curiosity is just, I'm curious. So, so my, my answer to that, "I'm curious, Harry, who else but ... So I understand you're the buyer, Harry. Who else might be involved in this process? Oh, a- and I'm curious, Harry, whose budget is this gonna be coming from? I'm curious, Harry, have you guys ever spent this much budget before in this kind of system? I'm curious, aren't there other people? Who else is impacted by this decision? Don't they get a vote, Harry? Could you just explain this to me? And by the way, the last time you did this kind of process, can you tell me what went down and how it worked and what the timing was?" Selling Through Curiosity is just an amazing ... 'cause most salespeople are, in some ways they're too busy trying to prove how smart they are, be tough and confident, and the, it's just so humble a place to come from, which is, "Harry, I'm really curious. Have you done this before?" And, and I'm not saying, "Harry, you're not the buyer. Come on, they're not gonna let you spend 150 grand." No. (laughs)

   25. HSHarry Stebbings42:54

       (laughs)

   26. DKDave Kellogg42:55

       It's gonna be more, uh, I'm just hearing-

   27. HSHarry Stebbings42:58

       You're a moron. Why would they give you

   28. NANarrator43:00

       (laughing)

   29. HSHarry Stebbings43:04

       (laughs) That'd be hilarious. So it's an interesting reverse sales tactic, isn't it? (laughs)

   30. DKDave Kellogg43:07

       (laughs) Yeah, absolutely.
10. 43:12 – 47:44

    2024 Discounting Strategies

    1. HSHarry Stebbings43:12

       (laughs) ... I love that. Uh, in terms of, uh, you know, getting to that close, we get to the close, and then they go, "Dave. Ah. You know, the price is just... It's just quite high, and we're looking at other options as well. Can you give me a 25% discount?" Uh, my question to you, how do you think about discounting today in 2024? 'Cause it does depend on macro, I think. Um, how do you think about discounting today? And how do you advise sales teams on the best way to approach it?

    2. DKDave Kellogg43:41

       'Cause some of these situations, it's... First, it's best not to get into them in the first place. And second, it's best to come armed. So- so a- a lot of the argument, the valid argument, for value selling, I thought we agreed that the system was gonna save you $5 million a quarter. Why are you coming to me for 100K discount on the last day of the deal?

    3. HSHarry Stebbings43:59

       I- I'm- I'm ge- I get you, but I- I've got, you know, two other options, and they're offering it to me at that, and so I just have to make the business decision.

    4. DKDave Kellogg44:07

       Got it. So there, there, there's gonna be a series of fallback strategies here, Harry, and none of them is going to work. But what I'm trying to do is make sure at least I have cards to play.

    5. HSHarry Stebbings44:14

       Mm-hmm.

    6. DKDave Kellogg44:14

       Uh, the next card I would play is... So the first card I'd play is value. Uh, and, Harry, this potentially delays the deal, 'cause- 'cause I need to go get approval on my end, so this could push it back a- a month or two. I'm not sure we can do it. And if we do, um, you're still going to lose a month or two of benefits, so it's going to cost you more than the discount right there. So that's going to be the first card I'd play, which is the risk of delay and value. The next card I'd play would be, the wholesale... If you're managing the sales cycle as a series of give/gets, which you should be. So, Harry, we talked about this. We talked about pricing before. When we cut it the last time, right? Remember, we had a negotiation, we took it down from 2 million to 1.8? I said, you may recall this, I said if we could... I said, "I can get you 1.8 if you can commit to me that we would do this deal," and you committed to me to do this deal, right? So- so that would be the next card I'd play, right? Like, hey, we had this conversation already. You're effectively using the last... You're using the last negotiation as a starting point for a new round of negotiation. And I'm calling foul, and I was saying, "The company may not do it." My boss .............................. may do it. But I can try, right? 'Cause in some ways, as salesre- as a seller, you need to kind of play powerless as well, because I'm kind of your advocate, too. So like, "Now, Harry, I can try. I'm really disappointed 'cause, well, you know, my boss is going to kill me, because when I came down from two to 1.8, you promised me you could get this deal done." Um, and- and just, you watch, just say, "I can't, I literally can't. The competitor's in at 1.7, and they're going to buy them." So then- then I have to take it back to the company. But at some point, I'm going to play these cards. They may not work. The most common, in my experience, was competitors, because I tended to work in competitive spaces. And then you have to take it back to the VP of sales and say, "How many rounds of... How many times have they done this? Do we believe them?" If they cut it to 1.8, are they going to come back and ask for 1.6, you know, eight hours later? Like, how are we going to get this deal done, done? Like, how can I trust your word anymore? So i- it's hard, Harry, but- but most of the great salespeople I know will try very hard not to collapse. They're- they're not going to be scared, like, "Oh, my God, we can get it at 1.7," and instantly cave, because I was signaling to you that, why not ask for 1.6? There's a- there's a great metaphor, Harry, which is, when do you stop squeezing a wet rag? When- when the water stops coming out, right? (laughs)

    7. HSHarry Stebbings46:22

       (laughs)

    8. DKDave Kellogg46:22

       So as long as there's water coming out, I'm going to keep squeezing. And then even then, when the water stops coming out, what do you do? One last twist, right? (laughs) So you've got to imagine yourself on the receiving end, right? You're the wet rag, and they're squeezing you. Water's coming out, (laughs) and- and then you're going to get one more. And you've got to say no, 'cause otherwise, they're gonna keep squeezing.

    9. HSHarry Stebbings46:41

       You know, Dave, we could maybe move to 1.6, but you are a great brand logo customer. I need a, I need your logo on the website, and I need a customer reference. How important are customer references? And are sales teams right to place a lot of weight and give for them?

    10. DKDave Kellogg46:59

        So I think they're important, and I think a good customer will do one anyway. So I don't love it as a negotiating chip.

    11. HSHarry Stebbings47:05

        Mm-hmm.

    12. DKDave Kellogg47:05

        Because if I'm doing right by your business, and if I'm delivering value, and if we have a good relationship, you should do it anyway. An- and if you're only doing it because I have a gun to your head 'cause you promised you'd do one, then I'm not sure how good a reference you're going to be anyway. So I don't love it. I- I think you do that as a last resort to try and maintain some shred of quid pro quo. (laughs)

    13. HSHarry Stebbings47:26

        (laughs)

    14. DKDave Kellogg47:26

        That I have to ask for something. But- but- but in reality, it's not being ............................ customer reference program.

    15. HSHarry Stebbings47:33

        (laughs) Okay, so this- this customer actually, they wouldn't... they wouldn't, uh, pay, and they decided to go elsewhere. Um, we need to go outbound again, Dave. Yeah?

11. 47:44 – 53:46

    Customer References

    1. HSHarry Stebbings47:44

    2. DKDave Kellogg47:44

       Yep.

    3. HSHarry Stebbings47:44

       Um, you said before that outbound, many found coal in their outbound stocking.

    4. DKDave Kellogg47:50

       (laughs)

    5. HSHarry Stebbings47:50

       I saw this, and I just loved it. What did you mean by many found coal in their outbound stocking?

    6. DKDave Kellogg47:55

       'Cause I guess I wrote that around Christmas. I think I was, uh, in the mood. Um, I think, for a lot of people, outbound was this kind of great savior, that- that the one they found... We talked earlier about the low-hanging fruit problem, and they went, "Oh, gosh, we've picked all the low-hanging fruit, and we couldn't possibly improve execution over there, 'cause I'm gonna have to start questioning my people, 'cause they're telling me it's all picked. So I guess the only thing I can do is outbound. At least I can be in control of my destiny, and I can give the salespeople something to do when they don't have enough leads, and I can quiet all the salespeople barking at me for not getting enough opportunities from marketing." So, and I don't know exactly what causes kind of outbound fever, Harry, but- but I'm a big believer in outbound in the right circumstance, right? Typically ABM, very targeted account selling, big deals. Outbound is- is a wonderful part of the strategy. But I'm not a believer in, "Oh, we can't generate enough inbound, and we don't know what to do, so let's do outbound." So what, are we just gonna call random people? Like, no, wait, we don't have a...... targeted account strategy. We- we- so, we're just gonna call a lot of people and try and make them show up to meetings, and we think that's gonna convert better than just getting more content out there that makes them interested in us and come to our events and download our whitepapers. Maybe we- we could try it, but...

    7. HSHarry Stebbings49:03

       As a VC, can I offer an alternative suggestion, which is, we saw the proliferation of outbound tools and the sophistication of outbound tools-

    8. DKDave Kellogg49:09

       Yes.

    9. HSHarry Stebbings49:09

       ... which many bought, and then they're put on sales teams as like, "Hey, we're now using this outbound tool which helps you craft the perfect email for outbound targets."

    10. DKDave Kellogg49:19

        Yeah.

    11. HSHarry Stebbings49:19

        And I would be interested to see the correlation between the buying of outbound tooling and the (laughs) proliferation of outbound activity.

    12. DKDave Kellogg49:27

        Well, see, the problem there is, it's an arms race. W- how... Which is now everybody has that tool, and everybody has the perfect email, so the buyer becomes numb to it. I- I think outbound actually worked better four years ago than it does today, 'cause I think everyone's doing it and people are getting flooded with it and th- they don't like getting called on their cell phone, they're not answering their regular phone, and you can do email sequences but they're- they're covered in email and the... I think there's new spam rules going into effect, but maybe they're not gonna happen, I'm not sure. I just think getting ready outbound, outbound is inherently difficult and gonna get harder, so- so they don't care. I'm a marketing person by background but- but- but- but by the way, the point of that statement was I actually literally saw that happen. I saw CEOs who two years ago were telling me, "Outbound is the big savior," and I'm like, "Are you sure?" Um, and now they're back at me going, "Forget outbound. I thought it was gonna save everything and it didn't." And the answer is yeah.

    13. HSHarry Stebbings50:15

        Is there any po- is- is there any point in investing in outbound? If you can invest in great content marketing, is there any point in investing in outbound?

    14. DKDave Kellogg50:23

        Yeah, if you know... Put it this way, i- i- the- the- if- if the juice is worth the squeeze, as I say, 'cause- 'cause good outbound is expensive. You're gonna spend a lot of money kind of stalking a company. Let's just say, for example, I'm an early stage startup, I've sold two big insurance companies and there's 10 more that I think need me. Stalk the heck out of them. Right? You're doing big deals, it's gotta be worth it. So you get a, you get an outbound SDR, you get a sales rep, you get marketing, you do retargeting, and you stalk these customers li- literally like, you don't know it yet, but we're- we're your destiny, right? (laughs) And so... (laughs)

    15. HSHarry Stebbings50:58

        (laughs)

    16. DKDave Kellogg50:58

        And like, you're gonna buy from me. That can work very well, 'cause you're replicating a use case in an industry, right? You've- you've got good reason to believe that these people need your software and they don't know it yet. I'm all in favor of targeted marketing in that case, 'cause it's a big deal. Um, if you're selling a- a $5,000 a year system to anybody as a generic productivity tool, I have a lot more trouble getting excited about outbound.

    17. HSHarry Stebbings51:23

        Where does it make sense and where does it not? Is it like, when you cross the 100,000 ACV and you have a very limited number of buyers? Is that the differentiation?

    18. DKDave Kellogg51:31

        Yeah. O- o- or you've deliberately limited the number of buyers 'cause you're gonna do a vertical expansion strategy. So let's just say, right? 'Cause- 'cause your tool might be sellable to everybody, but let's just say you've got some traction in insurance and you va- you wanna go replicate within insurance, then I'd go do it. And it's not to say the product is only useful in insurance, but I'm deliberately gonna constrain my go-to-market strategy so I have useful references, right? I mean, I'd li- I can summarize all of Geoffrey Moore in one sentence, which is, people buy when they think people like them use your solution, period. Do people like me use your solution? And I get to decide what's like me. When we start the question is, what's like me mean? Right? And it means my industry, my use case, my problem, my size, right? So- so- so much of sales is, h- can I prove that people like you have bought this and it helped them? So, and- and the problem with sales reps is they're very quick to say, "Oh, you both breathe oxygen, therefore you're like each other," right? (laughs) It's like, I have nothing in common with this person whatsoever, right? It- it- the customer gets to define things like them.

    19. HSHarry Stebbings52:32

        If you're a sales rep, how do you prove that people like you, Dave, use and love my product? Customer references? Logos? Uh, name-dropping? "Oh, well, I was talking to X the other day."

    20. DKDave Kellogg52:44

        Look, vertical strategies work because of the people like me effect. They're inherently limited and- and they're a little bit high cost, 'cause you now have to learn a lot about all your customers in that industry. But I think all of the above. Name-dropping, say, "Did you know, did you know that company X and company Y uses us? They're leaders in your space." Um, demonstrating understanding of the use case. Uh, like, the- I w- the- the, uh, what's it? Is it When Harry Met Salary when they, when they're recog- when they're completing each other's sentences, right?

    21. HSHarry Stebbings53:12

        (laughs)

    22. DKDave Kellogg53:13

        Uh, no, no, that was Jerry Maguire. Uh, th- th- like, wh- when you're describing your problem and I can finish your sentence, that- that builds credibility.

    23. HSHarry Stebbings53:19

        (laughs)

    24. DKDave Kellogg53:19

        It's like, whoa, this guy actually understands my problem. He's completing my sentences. Um, and he says they're using me at the competitors down the street, and the SC just h- helped implement a system at one of those competitors, right? It's that whole effect of, oh my gosh, people like me. And- and by the way, y- a vertical dinner, right? And so you get invited to a dinner and you s- you find literally people like you there. (laughs)

    25. HSHarry Stebbings53:43

        (laughs)

    26. DKDave Kellogg53:43

        Um, yeah. I- it's very important.

12. 53:46 – 59:50

    Product Marketing: Horizontal vs Vertical

    1. DKDave Kellogg53:46

    2. HSHarry Stebbings53:46

       So verticalized product marketing, it's kind of easier. You have a very specific industry you're targeting, they tend to have the same pains, they have, tend to have the same data in many respects. Um, great. Much harder when it's horizontal to do effective product marketing. When your Notion or Airtable, you're selling to developers and also to f- mothers and dentists and everyone in between.

    3. DKDave Kellogg54:10

       Yeah.

    4. HSHarry Stebbings54:10

       I love that everyone always uses dentists as the random analogy. Always a weird one, isn't it? Why dentists? But you said before... And so that's like a fricking hard product marketing challenge. And you said before, product marketing take a back seat. I was intrigued what you meant by product marketing take a back seat.

    5. DKDave Kellogg54:27

       Use case is the answer. S- so- so I have three layers I can fall back to, right? I can say, hey, Harry, people like you use this and they're- they're like you in every way, right? They're- they're in your vertical, they're in your, you know, they're doing, they're solving your problem, they're in your size range. The next level is just use case, where I need to convince you that your use case is similar to someone else's use case. That- that this case, that people like you, oh, are people who have this task management problem. Or I'll give you a real example for me, one of the stranger ones I had, I had to try and convince JetBlue Airlines that they were like McGraw-Hill Publishers.... right? And it's like, "Well, we fly planes, they sell books." Like, this is not gonna be easy, right? (laughs) A- and I said, "Well, what's your problem with JetBlue?" And they were like, "Well, you know, every plane is different, and therefore the documentation for every plane is different. And the plane can't leave the gates without a custom piece of documentation for that specific plane. A- and even if we change the coffee pot, uh, in a maintenance operation, I can't fly the plane unless the chapter on how to fix the coffee pot is changed. So, so every document is unique." And I said, "You know, tell me if I'm wrong here, but it sounds to me that it's a lot like what we do with McGraw-Hill, because they sell educational textbooks. And evolution in California is a theory, whereas in Kansas it's actually just a hypothesis that's been downgraded."

    6. HSHarry Stebbings55:41

       (laughs)

    7. DKDave Kellogg55:43

       Some people think. Um, so, so therefore, in order for them to sell a book, or if they wanna talk about Native American tribes, they need to use the local tribe in, in Oklahoma versus the one in California for the sidebars. So, so every textbook, if you wanna sell textbooks in, in any state in the United States, the book needs to be customized. I think that problem sounds similar. Do you? Right? And that's how we solved that use case. Got a million-dollar deal by, by different industry, same problem. And it made, uh, and the issue was you kind of need to lead the horse to water there. 'Cause it doesn't matter if I think it's the same problem, they need to think it's the same problem.

    8. HSHarry Stebbings56:16

       I love that, and I think that's a very smart alignment (laughs) . Um, it's a challenge. What do you advise founders, though? 'Cause I think the biggest problem I see, honestly, Dave, with, with early stage founders is as launch day comes, they broaden the ICP in fear that they're not gonna get anyone to use their product. And so they go, "Ah, we're not just actually for, for product managers now. We're for anyone who needs a to-do list," uh, or whatever that is. In terms of, like, the biggest product marketing mistakes that founders and early product people make, what are they that you see most often?

    9. DKDave Kellogg56:50

       So, there's a lot in that question. I wanna tell you a story first. You may have to re-ask it and edit it out, but I gotta tell you the story first. So I worked at a object database company, Harry, and object databases was a grim space back in the day. It wa- it was right after relational database. Everybody thought they'd be the second coming. So, there was a whole generation of companies, raised about 100 billion in aggregate, which was a lot of money at the time. Everyone tried to sell this stuff horizontally. And I joined, I'm running product marketing, and it doesn't work. Nobody wants to buy in 'cause they're just learning how to adopt relational databases. So, one day I come to work and they literally fire the entire executive team. Um, and I get my first VP of marketing job. Hey (laughs) .

    10. HSHarry Stebbings57:25

        (laughs)

    11. DKDave Kellogg57:25

        Battlefield promotion, um, to VP of marketing. And they bring in a new CEO, and we say, "You know what? Let's focus on what's working. Let's double down on what's working." And, uh, he said, "Dave, Larry, you go, you guys go figure out what's working." So me and Larry went off, and we came back and we said, "Well, you know, we're only a $5 million company, so there's not a lot working here, but we think telecommunications network management and this new standard is, is working." He says, "Great, let's bet everything on that. All chips on telecom network management." And we grew that business from, say, two, two of the five to 15 over the next two years. And back in those days, a company could go public at 30. So, they actually went public at 30 off that strategy. But as they were getting ready for the IPO, I'll never forget this, 'cause it's the, the two reasons I went to Business Objects. One was I was very attracted by moving to France, loved the founders, loved the space. The other was I had watched Versant fail trying to be everything to everybody, succeed with this razor sharp focus as we approached the $30 million IPO. No, no, we gotta broaden, broaden, broaden. So now it's good for finance, it's good for healthcare, it's good for telecom. And they literally went public at six bucks a share and stayed at six bucks a share, fell down to three, and then kind of went out of business or got acquired. So, I literally watched the whole life cycle of no focus driving nothing, intense focus driving success, and then the financial types coming in and saying, "This won't sell on Wall Street," with, with no regard for the marketplace, right? So, so the, the, the short answer to your question is external pressure driven with good intent by people who don't understand the business.

    12. HSHarry Stebbings58:57

        (laughs)

    13. DKDave Kellogg58:57

        Th- that's the biggest risk (laughs) .

    14. HSHarry Stebbings59:00

        I think, I think what I see also is like, a, a need to meet valuations that were 2021 valuations. And the only way to do that is to expand into verticals or use cases that are not aligned, not beneficial. But do we need to?

    15. DKDave Kellogg59:16

        Yeah. And those hops are dangerous, Harry. The other thing is, so I imagine this all as a matrix of vertical versus use case. And every time you're hopping a cell, it's danger, right? Like, you, you know how to sell the custom publishing use case to publishers. Can I sell it to airlines? First, the first one is really, really hard, right? And once you've got one, then you can start to replicate. But any time you're hopping in this matrix, you should put a big, like, yellow, this is gonna be difficult flag. And if you think you can just kind of knock these things down like dominoes, no way.

    16. HSHarry Stebbings59:48

        I love that (laughs) . Uh, no, I totally

13. 59:50 – 1:05:06

    Engineering vs GTM Founders

    1. HSHarry Stebbings59:50

       get you. We, I, I find we hail engineering founders today, Dave. And, you know, engineers are great. No disrespect to them. But with that praise or idolization, we denigrate GDM-focused, GTM-focused founders, and some way less pure. How do you think about that? And what do you think they most often do not understand?

    2. DKDave Kellogg1:00:12

       I'm a tough person to answer this question, 'cause I, I view my personal specialty is working with technical founders to explain sales and marketing. Like, that's my superpower. So, my favorite thing to do is take, you know, a, a PhD dropout or PhD student who, who's founded a business and try and help them understand-

    3. HSHarry Stebbings1:00:28

       Do you, do you, do you find they-

    4. DKDave Kellogg1:00:29

       ... yeah.

    5. HSHarry Stebbings1:00:29

       ... respect it? I find most often they're like, "Sales and marketing? Fluff."

    6. DKDave Kellogg1:00:32

       Well, it's 'cause I think most people do a terrible job of explaining it. So, so that is the typical reaction. But I don't blame the founder, I, I blame the explainer. Th- this is actually what I think I'm good at, Harry. We've hit the one superpower I think I have. I think I'm really good at explaining that. And what I find is that they're really good... You know, turns out PhDs are really good students (laughs) .

    7. HSHarry Stebbings1:00:51

       (laughs)

    8. DKDave Kellogg1:00:51

       And if they think you're credible and you can teach them something, they learn incredibly fast and they're super interested. You try to feed them bullshit, no (laughs) , they're not interested, right? Or you just say, "Well, work to, you know, work to Cisco, or work to Salesforce, or work to wherever." Y- y- you know, that, that doesn't work for them. But if you can structure it and explain it, I, I find in general, they're phenomenally good to work with.

    9. HSHarry Stebbings1:01:10

       Do you think we denigrate GTM-focused founders?

    10. DKDave Kellogg1:01:13

        I don't actually know. Uh, uh, I would say the fashion right now is product-oriented founders, for sure. I would say product, not engineering, by the way. Uh, that seems to be the best. Like, if I was advising a young person wh- where to go if you wanted to found a company in two or three years, I'd say product, not engineering. Uh, back in the day-

    11. HSHarry Stebbings1:01:28

        Why?

    12. DKDave Kellogg1:01:28

        ... it really was engineering. 'Cause I think product is seen as a...... kind of less intense form of engineering. Like they're technical enough, they understand the product, but do you really have to understand exactly how to build a product? So I don't know. I think that's the, that's my perception of the preference of the industry tonight, right now. 'Cause, 'cause back in the day it really was engineering. I mean, i- it was. They were engineers, they weren't product people 'cause some product people aren't that technical, which creates its own set of problems, right? Because they're, they're neither fish nor fowl. I, I think if GTM founders are revered if they're selling GTM tech. So, so I think that's the case where people want them, right? 'Cause they understand the buyer and the problem. I think the other interesting pattern to look at, and I don't have data here, but my sense is if and when you replace a founder, which was extremely unpopular for the last five years but I think will get more popular going forward, you will tend to replace them with a GTM person. That, that has always been the pattern in Silicon Valley, um, that you replace product and engineering-oriented founders with GTM-oriented people. Andreessen Horro- uh, Horowitz, in my opinion, put that trend on hold for a decade or more, right? But, but I can tell you back when I was a CEO, if you went to Buck's in Woodside or had, you know, lunch on Sand Hill Road, you'd hear, "Founder issues, founder issues. We gotta replace the founder. There's a sell-by date on the founder's head." And, like, replacing founders was, like, super common in those days. And then Andreessen came along and said no, and the whole industry kind of followed suit. They were very, very founder-friendly.

    13. HSHarry Stebbings1:02:51

        Why do you think that pendulum will swing back and we'll see replacing founders returning more commonly?

    14. DKDave Kellogg1:02:57

        'Cause I think, like any extreme, it's wrong. Ha- and I think we were too far the other way before. We were too quick to throw out founders. I personally think a founder is the best person to run the business, I am super founder-friendly, but no, they're not. I used to say they had a, uh, invisibility cloak. (laughs)

    15. HSHarry Stebbings1:03:14

        (laughs)

    16. DKDave Kellogg1:03:15

        (laughs) Li- literally, like you'd see like a founder could do anything. Part of it was jealousy 'cause I was a non-founder CEO, and I watched my back every day 'cause I knew they could fire me, and would. Whereas some founders just act like, and sometimes by contractual terms they are, but they act unfireable. A- and I think it's not good. We, we should, none of us should feel like we're invincible.

    17. HSHarry Stebbings1:03:33

        I would also say that replacing a founder does not mean, like, removing them from the company. I still see incredible value from having them in a role where they can empower teams, empower customers, tell the vision. But bluntly, CEOs know how to make money printing machines. I think of, you know, MongoDB with Dev. Dev is a phenomenal CEO. Very, very few founders are as good a CEO as Dev is, and it takes a very different CEO to run a public company than to scale to a million in ARR. You can still have them in the company, but they're just not the CEO and leader.

    18. DKDave Kellogg1:04:09

        A- agreed, by the way, and that was always my position, and that's what I did at ArcLogic by the way. There were two PhD founders who founded it. I, I, I viewed myself as their sherpa. I was gonna get you to the top of the mountain, right? 'Cause I, I like technical founders. I, I, I know what I'm good at and what I'm not good at. Especially when you're selling platform fa- uh, software, you need these geniuses, uh, driving the vision of the product. So, totally agree with you, Harry, um, that, that, that replacing the founder as CEO doesn't have to mean, if ego doesn't get in the way and if things are properly handled, doesn't have to mean they're not at the company anymore. They can be in a very important role. So I, I, but basically I just think the pendulum has swung too far. I, I think we were too quick to replace 'em in, in the '90s and early 2000s. I think for the last, whatever, 15 years, we've been too many lives. To, to, just, just too, (laughs) too many, you know, cat has nine lives. It's just like, wow, founders just have unlimited lives, they can make as many mistakes as they want to and at some point you need to replace 'em. I just think we're... What I think is we're swinging back

14. 1:05:06 – 1:08:06

    AI SaaS Strategies for Founders

    1. DKDave Kellogg1:05:06

       to a more reasonable middle ground.

    2. HSHarry Stebbings1:05:07

       I think we definitely are. Um, I do wanna touch on sales tooling and AI before we move into a quick fire.

    3. DKDave Kellogg1:05:13

       Mm-hmm.

    4. HSHarry Stebbings1:05:13

       We've seen this explosion of AI sales tools. How do you advise SaaS founders who are sitting looking at this landscape going, "What do I do?" How do you think they should approach it?

    5. DKDave Kellogg1:05:23

       Yeah. Play with stuff. That's what I think. I mean, if you're a vendor, in my mind, get out there and know you're playing musical chairs and when the music stops you're either gonna be a player or not. So i- if I were a founder of one of these companies, I'd be very aggressive right now to get myself known and established in the market, 'cause this market will organize, right? We're in the chaos phase of the market, a- and so from the vendor side, this will organize. There will be winners and losers and it will happen overnight. Well, you know, 18 months from now.

    6. HSHarry Stebbings1:05:48

       Do you think it will or do you think it'll be baked into existing vendors? You know, we'll outreach just add it, sales

    7. DKDave Kellogg1:05:52

       Well, that's part of the... Or will this add it? I, I include that in market organizing. Yeah. I- it might be done through M&A, it might be through turning companies into features. There's a lot of ways the market can organize. The, the, the thing I know is that it's not gonna be 100 different companies with too many names and we can't understand who does what. Um, but my advice is, rather than try to pick winners, I mean, VCs have that problem, customers should just play with tools, right? And, and just go get yourself familiar with these things. That's what I advise people. Yeah, try to pick the tool you think is gonna win so you don't have to switch later, but, but more important than that, don't, don't sit on the sideline waiting for a winner to emerge before you figure out how this tool can help your business, right? Just go play. Te- tell your sales op's head, "I want 30% of your time playing with new tools." Just go out and try new stuff, right? B- because we need to know, we need to understand what these things are and how they can help us, 'cause they can make phenomenal improvements in productivity.

Episode duration: 1:12:19