The Twenty Minute VCDavid Schneider: Why the Worst VCs are "Seagull VCs" & VC Value Add - Is it Real? | E1200
EVERY SPOKEN WORD
145 min read · 28,974 words- 0:00 – 1:06
Intro
- DSDavid Schneider
People buy product for three reasons. They either buy it because it's gonna help them make money, they buy product because it's gonna save them money, or it's gonna keep them off the front page of a newspaper. There are VCs that are seagulls, fly into a meeting, fly into a location, they basically take a shit-
- HSHarry Stebbings
(laughs)
- DSDavid Schneider
... and they fly away. When you're interviewing potential board members, look for relevant experience, not the fact that they've been on eight other SaaS boards-
- HSHarry Stebbings
Yeah.
- DSDavid Schneider
... but have they ever done anything themselves?
- HSHarry Stebbings
Ready to go? David, I am so excited for this. I mean, I spoke to so many great mutual friends beforehand. Doug Leone said many wonderful things, which is always wonderful to hear. So thank you so much for joining me today.
- DSDavid Schneider
Oh, it's absolutely great to be here. I've been listening to the podcast and I feel like, uh, listening to your podcast was part of my education in becoming a better investor. So, uh, thank you for doing what you're doing and it's just great to be here.
- HSHarry Stebbings
Do you know what? It's the British accent, I get an extra 10 points on the IQ scale just with that. But I'm thrilled that you like it (laughs) . I do wanna start though, 'cause you
- 1:06 – 5:41
Highlighting Key Achievements from an Operating Career
- HSHarry Stebbings
have literally, I think, the most impressive operating career that I've had on the show, definitely for a long time. So when we look at your operating career, what are the single biggest achievements to you that you say to founders as, "Hey, I did this in my operating career."?
- DSDavid Schneider
Well, thank you. It, it was a 30-plus year operating career. So in that 30 years, there were some, some tough years and some good years. But the two things that kinda stand out, I spent, uh, almost nine years at a company called Data Domain, where I joined, uh, at $0 in revenue, and by the time I left, we'd gone through an IPO, took it to about a billion dollars, and then we got acquired by EMC in a hostile acquisition in 2009. Whole story about hostile acquisitions, if you ever wanna get into that. Um, and then the next one is I spent, uh, 10 years at ServiceNow, uh, joining Frank Slootman, again, who I had the privilege of working with at Data Domain, um, into that company, which was about 80 million or so in size when I joined. And when I left, it was five billion in revenue and, uh, it felt like the job was well done, uh, to make that happen.
- HSHarry Stebbings
Uh, listen, you, you gave me such a great teaser there. Hostile acquisition? How can I, like, let that go under the rug? Wha- what was that process and what did you learn from it?
- DSDavid Schneider
Oh, my God. So, um, in fact, w- here we are in London and this is a fun story, is, um, we knew that our business was very valuable, even though in 2009 the stock price went down because the market went down. And at the time, in 2009, there was another company called Network Appliance that had approached Frank Slootman about a potential acquisition. And we were close to them. We knew who they were, we're neighbors, they l- they're down the street. A lot of our early engineering team had worked there before and we did not know EMC and in fact, Joe Tucci, when we reached out to him to get to know him, he was always hidden from us, um, because of various reasons. So in, in '09 we sound- signed a definitive agreement to be acquired by Network Appliance, and it was a, it was a good offer and we had all these integration meetings. And I was actually here in London having dinner on Brick Lane, I know, judgment, okay, with my sales team. And my phone rings and it was, um, basically the news that EMC was, uh, launching a hostile acquisition for our company and outbidding, uh, Network Appliance. Now, we were not allowed to talk to the other company, 'cause in a definitive agreement, all we could do is stay quiet. But we had lots of, uh, interesting emails and texts that came in over the line. And it was apparent to us that they weren't gonna go away. But then NetApp, NetApp responded, uh, EMC takes full-page ads out in the Wall Street Journal, in the local paper, was driving trucks around our office saying, "Can't wait to work with you people at Data Domain." It was, it was, uh ... We were the prettiest girl at the dance for the first time in my life and it was really quite exciting.
- HSHarry Stebbings
Is it a game of the highest bidder wins?
- DSDavid Schneider
It was. In fact, 4th of July happened, Net- NetApp people went on vacation and EMC didn't. And they knew exactly how much cash NetApp had and what they could do to, uh, win the deal. And they made the winning bid over the 4th of July weekend and we had to respond. The classic point of that was we announced that, yes, we were gonna have to accept their offer, that couple of days later I was gonna have my sales club trip in Mexico with my team and, uh, Joe Tucci's like, "Great, I'll be there." We said, "No, you won't. This is our last moment, our last opportunity." And it was one hell of a party.
- HSHarry Stebbings
(laughs) What was the spread between the initial and then the final?
- DSDavid Schneider
Uh, oh, I think y- you know, this is a, a, in a world where valuations were much different than today, I think maybe 1.8 to 2.2, or 1.7 to 2.2.
- HSHarry Stebbings
Pf, still a decent spread.
- DSDavid Schneider
Yeah, but imagine buying a company, at, at the time, 550 million in revenue, 75%, 80% margins, for $2 billion.
- HSHarry Stebbings
What was the growth rate?
- DSDavid Schneider
Uh, about 80%.
- HSHarry Stebbings
Whoa.
- DSDavid Schneider
Yeah. Crazy times.
- HSHarry Stebbings
(laughs)
- DSDavid Schneider
So this was a steal of a steal. And inside of that company, inside of EMC, we drove it to a billion the ne- that first year and $2 billion in the second. So very transformative product, still being sold by Dell to this day.
- HSHarry Stebbings
(laughs) .
- DSDavid Schneider
And, uh, great technology. New companies coming along that try to beat it, but that was a fun one.
- HSHarry Stebbings
My God, that is incredible. I also have not heard of like quite the guerrilla marketing style to get you over the line, in terms of ads, uh, lorry trucks, you name it. That is fantastic.
- DSDavid Schneider
They never went away and, um, you know, gotta respect their style. They ... And they were very prepared with a team, um, at integration time and, uh, made, made
- 5:41 – 6:42
Biggest Takeaways in Hindsight from David’s Career
- DSDavid Schneider
some magic happen.
- HSHarry Stebbings
When you look at that journey, that was a phenomenally successful journey. What were your biggest takeaways when you look back now with the benefit of hindsight?
- DSDavid Schneider
Well, I think the first part of that journey that was so important is the first year, we didn't have the right product. We had an initial product that I almost would refer to as a paid-for beta. We knew it had some of the features and elements of what the customers needed and we were talking about the product in a way as a backup appliance.And very quickly after talking to customers, they're like, "It's not about the backup guys, it's about the recovery. It's about how fast can I recover this data so I can do my job and not get in trouble if something is corrupt." And so we got really good at finding the first use cases where we could be effective every time. And so the other thing we did is it was simple to integrate into existing technologies. We didn't force customers to change their environment, we just plugged right into their existing backup software world. So, y- you know, simple does win in technology a lot of times, and people need
- 6:42 – 9:45
Is Adding or Removing a Line Item Key to Successful Tool Integration?
- DSDavid Schneider
to keep that in mind.
- HSHarry Stebbings
One question I always ask, uh, when I'm investing today is, when we're analyzing how a company can integrate a tool into their existing stack, is, are we adding a line, like a line item on the budget or are we actually removing one? Like, how important do you think being able to answer that succinctly is? And is it a problem if you are adding one now?
- DSDavid Schneider
I think any time you bring a new solution forward in an enterprise, anybody who's bringing something in today has to be asked, "What are we taking out of the budget? What are we replacing? How is this augmenting? How is it gonna make our world better?" And we'll get into it more, but, uh, what I always try to tell my team, my whole team, the engineering team, the product team, is people buy product for three reasons. They either buy it because it's gonna help them make money, they buy product because it's gonna save them money, or it's gonna keep them off the front page of a newspaper, which is usually what security products are being bought and sold for. So, that's the reason why. So you've got to show them how they're gonna make money, save money, and that's really important.
- HSHarry Stebbings
Do you know what I always get when I'm on boards? "Yeah, you know what, we have this, but it got pushed to next quarter. It got pushed to next quarter." How do you think about instilling that urgency in any of those three? Because urgency, I guess, is important in all of them.
- DSDavid Schneider
Yeah, that- that common thing- that common refrain, uh, "We- we had the sponsor, it just got pushed," that's really a discussion around was the value of my solution that I proposed worthwhile for them to make the choice for us? Or was some other solution that was being proposed, not even if it was competitive to us, but another thing in the company that was being worked on? There's only so many projects somebody can run at once, and so many dollars to go solve the problem. So basically, the seller's job is to make sure that the value that you're providing is well understood. And we- we adopted a sales methodology at ServiceNow that featured this, where we had joint value discussions, and we called it a value prompter, that we did with our customers so that when it was time to go up to the CIO or CEO for 5, 10, $20 million worth of funding, that they knew what the business case was and it- it held true. Because deals that slip at the end of the quarter are the nightmares, the bane of your existence if you're the management team or board. And after a while, you lose faith in your sales leadership about their ability to guide the business. And so my job always was be able to call the number 90 to 180 days in advance, plus or minus 3%. So if you can do that reliably, you can keep your job as a CRO, but more importantly, you know how to guide the business, who to hire, where to hire, how to allocate resources as an executive team on building out a company.
- HSHarry Stebbings
When we go back to those three, save money, make money, or keep you out of prison, as an investor stage do you have a preference for one of them?
- DSDavid Schneider
Uh, I don't. I just want you to be able to answer, um, the question.
- HSHarry Stebbings
Are many founders able to?
- DSDavid Schneider
No. I think not until we start asking. Now, the best founders, the ones that I- I really get excited to work with are the ones that have clarity of thinking about that
- 9:45 – 14:20
How David Approaches Competition When Investing
- DSDavid Schneider
process.
- HSHarry Stebbings
Do you know what I hate in investing? It's competition. (laughs) And yet the amount of people who're like, "You know what? We can help you make more money because we deliver you more leads, we allow you to interact better with leads," whatever it is, like sales analytic solutions, you name it. And I hate competition. How do you feel about competition when investing, having won in pretty intensely competitive markets?
- DSDavid Schneider
So, I- I think in any market that's worth going after, there's going to be some competition, especially in the enterprise space. So, the secret for me was, it was easier for me to unlock dollars from existing known spend areas than it was for me to create a new spend category and create new budgets that didn't exist before. So if I could show more efficiency or better mouse trap type things, I was- I was gonna win more deals faster in those situations. Now, the thing about competition is not all competitors are created equal, Harry. So imagine this is the backdrop. You're at ServiceNow in 2011. The transition to the cloud is happening, okay? The market is starting to give signals that everybody wants to move to the cloud. The two companies we were competing with were BMC and HP Software, two companies that quite honestly were dead already in my book. All they were trying to do was take money out of the- the revenue stream and drop to the bottom line. They weren't focused on the customer anymore. So now all of a sudden, we have this new idea, same kind of product but just a lot fresher in the cloud, and I unleash the hounds of hell of an incredible go-to-market team at the same time, and I just decimate a market that they existed in. Decimate. So that's the fun part about competition, because if you have singular purpose and you know what you're trying to do, you can have a lot of fun blowing up other organizations.
- HSHarry Stebbings
Have you ever had a time, I'm sh- sure, but like when was a time when your GTM team was not crushing, when it was just not decimating? And for the many founders in that position now, how do you rejuvenate them when that is a palpable feeling?
- DSDavid Schneider
Most of my team would be crushing. Um, and partially because there's a way to get 'em to be effective. And I think when you, when you are, this is gonna go into the how would I build a company-
- HSHarry Stebbings
Right.
- DSDavid Schneider
... and how do I think about it, I think the way you get sales teams going is you identify what your target customer is, the ICP, okay? So know where you need to play.... know what the issues are that they're facing. Listen to the other customers who are already using your product. Use those stories to tell the stories about transformation, difference making, et cetera, to the other prospects you're working on. Teach your sellers those stories, the playbooks, and we'll talk about playbooks. What do I say? Who do I say it to? What's the profile of the customer that we wanna go after? What's the likely objection they're gonna give us and how do we overcome it? All of that's inside the realm of possibility for training and onboarding for my go-to-market team. Then I gotta hire a bunch of people that just have to want it a lot more than everybody else. And I look for people with a chip on their shoulder. I look for people that have something to prove, where the best days are in front of them. And I want, I, I, I called it at, at Data Domain, the land of the misfit toys. I wanted people that didn't fit in normal places because I wanted to give them a home where they could do incredible things and be welcome and supported. And so having that edge, so give them the training, give them the s- the playbooks, give them the stories, then hire people that really, really care, that are hungry to change. That's just a dynamic group of activity that you can drive inside of a market.
- HSHarry Stebbings
Are there backgrounds which make salespeople more likely to be great? For example, I actually like it when you find competitive athletes who turn into sports reps, uh, and sales reps or salespeople. They can, uh, endure great pain for long periods of time for delayed gratification. It's like a core trait, I think, of sca- sales. Is there a background that you found to be commonly very valuable?
- DSDavid Schneider
One of my first and most important questions when meeting someone is I ask people, "Tell me something that you're proud of that you had to work really hard for." I'm looking for where they had to dig down and make something important happen. You just tend to find a pattern with people, um, that if they've had to overcome something, and I, I also say we're, we're all survivors of something. Just pick your something. And, and what I want to know is, what did they have to get through to get where they are now? What makes them tick?
- 14:20 – 16:45
Balancing Transparency and Morale as a Leader
- DSDavid Schneider
- HSHarry Stebbings
How do you feel about transparency as a leader? I know, (laughs) I know we have this beautiful schedule, but I'm loving this. How do you feel about transparency as a leader? We're often told about it being so important, but then there's this question of you do need to sometimes keep morale up artificially. You can't always say the truth. How do you feel about that?
- DSDavid Schneider
I, I think people know the truth. And so you're almost better off addressing any issue, strength and weakness, head on. There are also lots of ideas inside of a company. And what I try to do is almost reverse the pyramid of how organizations would think about it. You know, some people say, "Everything's top down."
- HSHarry Stebbings
Yeah.
- DSDavid Schneider
I don't agree with that. I think we have a strategy or we have a, a vision of what we should go do. But then I look for the people closest to the customer, closest to the problem, closest to the technology, to say, "How would we solve it?" And if you can empower those people down below, they're gonna bring their best self to work on a regular and you're gonna get a lot more ideas trying to solve the tough problems.
- HSHarry Stebbings
How do you empower them? Bring them to the meetings? Uh, allow for idea generation in a new way? What is the right way to empower them? It's difficult.
- DSDavid Schneider
Well, I could think of a couple specific situations where we were dealing with a, uh, customer opportunity. This at ServiceNow. And one of my sales engineers said, "I'm working on something where it is ticketing," very similar to what we did for IT service management, but they wanna use us for HR. And we don't really have that product. Now, there's a couple stories about when we had the product or didn't have the product. I said, "Well, let's, let's work with them, because this may be a really interesting use case." And so we basically put this SE in charge of listening to the customer and demoing back what he'd heard. Not through engineering yet. This was just a proof of value kind of experience. And, um, this gentleman, Eric Hammer, still remember his name, um, was so important in the, in the gestation and building of the understanding of what the idea was. We then took that to, like, three or four other customers and we showed it to our engineering team. All those customers got really excited about it. We brought it back to engineering, said, "We'd like us to build something on the platform, which already does 99% of this. We just need to relabel some things." That's a, probably a billion dollar product now inside of ServiceNow, because we just listened to customers. And that was Eric, who was close to that problem, who listened and said, "I've got an idea. Can I go forward?" And we were just smart enough
- 16:45 – 20:42
ServiceNow's Success Highlights
- DSDavid Schneider
to listen.
- HSHarry Stebbings
The numbers with ServiceNow are quite mind-boggling. Did you know it would be as big as it is? Or do you th- can... Do you agree with the common statement that we always underestimate the size of our winners?
- DSDavid Schneider
I wish I would've known it was as big as it is.
- HSHarry Stebbings
(laughs)
- DSDavid Schneider
Um, when I, when I got there, it was far from a perfect story. Um-
- HSHarry Stebbings
You got there at 50 million in ARR.
- DSDavid Schneider
It was a little bigger. About 80, 90 million.
- HSHarry Stebbings
80, 90 million.
- DSDavid Schneider
Um, and Fred Luddy, who is the founder, great human being, uh, one of the most special founders I've ever met and worked with. He's gr-
- HSHarry Stebbings
Wh- why?
- DSDavid Schneider
Oh, you know, one, he was customer-centric. Absolutely loved solving the problem for the customer. He came out of the space that we were in. He had written the Paragon product, which became the HP product. So as he said, "I'm making up for all the sins of my past-"
- HSHarry Stebbings
(laughs) .
- DSDavid Schneider
... with, by building this other thing." Which I love that story. I love repeat founders on, solving a similar problem just with a better approach. Y- you'll find that is a theme of mine when I make investments.
- HSHarry Stebbings
Is that tough for you as a GTM leader, though, when you have, like, customer demand through the roof? You can sell, sell, sell, but actually there's technical debt, there's infrastructure problems, and you have to be tempered in your decimation approach.
- DSDavid Schneider
Uh, not really. Um, I'm a, I'm a believer that if, if I'm with the right CEO and the right founding team and the right executive team, that we can be flying the airplane to Japan from San Francisco and doing maintenance on the engines at the same time. And that's what we had to do at ServiceNow. So every once in a while, things were a little bit-... crazy. Um, but we got through it. And you can't take your foot off the accelerator or somebody else is gonna catch you. So you, even as uncomfortable as that was, we had to go do the maintenance on the airplane while flying it.
- HSHarry Stebbings
Is speed the most important thing in those early days?
- DSDavid Schneider
Speed is definitely one of the most important things. Speed of decisioning, speed of, um, getting people answers to questions, speed of deciding what's important and then focusing on what's important. Really, really important. I think people try to make a perfect decision. By the time you make a perfect decision, it's actually gonna be the wrong decision, 'cause the issue's already changed.
- HSHarry Stebbings
So I spoke to 12 people before this show, and I think seven or eight said your biggest strength was your speed of decision-making and clarity of decision-making. Is there a decision that you made that with the benefit of hindsight you wish you'd taken longer to make it?
- DSDavid Schneider
Yeah, I think one of the pieces of feedback I got at one point is, "Get at least two points of data before making a decision."
- HSHarry Stebbings
(laughs) .
- DSDavid Schneider
I sometimes was such in a rush to move forward. And I, I worked for a guy, Frank Slootman, who is famously saying, "Hey, you need to compress cycles every day." Um, "Let's make a decision. If it's the wrong decision, we'll fix it."
- HSHarry Stebbings
What was the biggest one you got wrong?
- DSDavid Schneider
I think people. I think we made a hiring decision at one point, we got convinced that we needed to go outside of the company for a senior go-to-market leader, 'cause we had, we hadn't seen some of the things that we wanted to see.
- HSHarry Stebbings
Mm-hmm.
- DSDavid Schneider
We didn't know how to do certain things. Brought a gentleman in, I wanna protect the innocent, or not, um, but br-
- HSHarry Stebbings
(laughs)
- DSDavid Schneider
But, but-
- HSHarry Stebbings
Will not name and shame. (laughs)
- DSDavid Schneider
Yeah. But, you know, I won't say the person.
- HSHarry Stebbings
Sure.
- 20:42 – 24:22
External Hires vs. Internal Promotions: Founder Advice
- DSDavid Schneider
that was a problem.
- HSHarry Stebbings
I, I, I'm so enjoying this. You said there about kinda bringing someone in versus hiring internally or promoting internally. It is one of the biggest problems for many founders of when to do that versus when not to. How do you advise them?
- DSDavid Schneider
It's a special place in my heart on this issue, because on my journey at Data Domain, there was a moment in time where Frank could have brought in somebody else to run sales. Our first year was $3 million goal, I did 2.97. My f- I missed, right? 2.97 against 3. That, to me, is as big a miss as if I would've only done 1 1/2. Right? So that was a miss. The next year, we were gonna do, call it $9 million. And they were getting nervous, like, th- d- was, was I the right guy or not? And you know, it was, it was not apparent to me that even I thought I was the right guy, but I was gonna go convince them I was. Well, lucky for me, we, instead of doing 9 million that year, we did 15.
- HSHarry Stebbings
Oof.
- DSDavid Schneider
And then we did 45. So by the time they figured out I may not be the right guy, we'd already blown through that issue, um, and they kept me. But they, they s- what Frank made the decision is, "I'm gonna ride this horse. He's got the energy. I think he, uh, you should probably talk to him, but I think he's got the energy, the intelligence, the willpower, the fear of failure that we need to drive this company forward. And whatever he doesn't know, he'll get mentoring for, we'll get coaching for. But the good way ou- it outweighs the bad by a long shot." And so for me, it was that opportunity. So when I look at the, the young people in that role today, I'm rooting for them. I want them to be successful. So every board I join and I see the CRO or the VP of marketing, I wanna take them under my wing and mentor them so they can achieve their potential and not get swapped out. So my, my whole goal is get these people to their potential. The CEO to their potential, the company to their potential, and the individuals on the journey to their potential.
- HSHarry Stebbings
My challenge is I do not think young people want to work like they used to or want to sacrifice like they used to. There are very few that do, and they tend to be founders, but I find that number is less.
- DSDavid Schneider
I disagree with you completely. I think there are certain founders that also don't wanna work that hard.
- HSHarry Stebbings
(laughs) .
- DSDavid Schneider
I think there are, there are people that, that are misguided on that, and I think there are people that know they'll never be a founder. Guys like me. I would never, ever be a founder. But boy, my job is to put... I, I use analogies a lot. So I viewed founders in the engineering team, they were the artists. They were building this incredible product, it's like artwork. And the analogy I use is, remember when you were young and you'd bring your artwork home from your kindergarten class?
- HSHarry Stebbings
Mm-hmm.
- DSDavid Schneider
And you'd go, "Mom, look at this." And if, on a good day, she'd put it up on your refrigerator. How'd that make you feel?
- HSHarry Stebbings
Great.
- DSDavid Schneider
My job is to put the artwork of these engineers on every refrigerator in the world. That's my job. I need to go find people that view that, not as a founder, but the partner to that founder, that see that burden, that opportunity, the, the privilege of doing that, as something that they wanna do. And I think there are people out there that wanna work that hard.
- HSHarry Stebbings
80 million, 90 million, give or take, for, when you came to ServiceNow to 5 billion.
- DSDavid Schneider
Yeah.
- HSHarry Stebbings
Anything that we haven't mentioned that you think is crucial in really enabling that successful revenue scaling?
- DSDavid Schneider
Well, it was a fun one. Um, when I joined, they had about 16 reps.
- HSHarry Stebbings
Mm-hmm.
- DSDavid Schneider
And if you look at just sales capacity, that meant the capacity they had at about a million and a half dollars a rep was about, you know, call it roughly less than $30 million. The goal for that next year was $100 million of new business. I had $30 million of capacity going into
- 24:22 – 27:09
Hiring & Ramping 180 People in 90 Days
- DSDavid Schneider
it. I hired 150 people in less than 90 days.And we did the $100 million.
- HSHarry Stebbings
And how did you ramp them so effectively and so quickly?
- DSDavid Schneider
I'm really good at my job.
- HSHarry Stebbings
(laughs) .
- DSDavid Schneider
No. So, um, I am really good at my job. But what, what happened was, there was market pull for the technology, there was definitely a receptiveness to it. We had probably underserved the profile of potential customers, we, we probably didn't have enough people on the street, so there was some pent-up demand for us. One of the things we did is we changed our pricing as well, so I got rid of some of the discounting modes that we were dealing with, we basically doubled street price in that first quarter, um, which helped us double the revenue for that first quarter. And because I'd gone to that user conference and I was watching the feedback from these customers, giving massive standing ovations to the founder, telling me this was the best technology they've ever purchased, I had a lot of confidence in the value of the product against the problems we were solving.
- HSHarry Stebbings
What opportunity did you not take that you wish you had taken?
- DSDavid Schneider
If I go back in ServiceNow, we, we knew that we wanted to take that company public in a year and a half to two years after getting there.
- HSHarry Stebbings
Uh-huh.
- DSDavid Schneider
That was just our mode of thinking. Like, our job was get liquidity for investors, take this company public, get it out in the public market so that customers would have visibility and understanding of who we were, what our financials looked like, we wouldn't be portrayed as some small little Silicon Valley startup or San Diego-based startup anymore. We wanted to be a public company.
- HSHarry Stebbings
Did you have a revenue goal in mind for what you needed to do or get to to be public?
- DSDavid Schneider
Absolutely-
- HSHarry Stebbings
What was it?
- DSDavid Schneider
... from day one. Well, that first year, getting $200 million from 100 was very important on that goal, and it really came down to two last deals at the end of a Q120... Oh, goodness, what year was it? 2012, that I was working on, uh, that we got over the line that allowed us to hit the button to file our IPO. So it gets that close sometimes, where the numbers have to be lined up, and then we had to prove that we had visibility of the pipelines so that you wouldn't miss for the next four to eight quarters after you go public.
- HSHarry Stebbings
What did you-
- DSDavid Schneider
A lot of pressure.
- HSHarry Stebbings
What did you go out at, price-wise?
- DSDavid Schneider
I think it was 18 bucks a share.
- HSHarry Stebbings
Which is market cap?
- DSDavid Schneider
A couple of billion dollars.
- HSHarry Stebbings
Couple of billion. And today it's?
- DSDavid Schneider
170 billion.
- HSHarry Stebbings
Phew.
- DSDavid Schneider
It's shocking. I mean, and, by the way, during the IPO process, we had Gartner show up at a lot of the investor pitches and say, "The size of the ITSM market is gonna be capped out at a billion dollars, so we don't see the growth potential for ServiceNow." That was Gartner. And so it was one of the reasons we hated Gartner for a while at ServiceNow, but that was a real big blow and we had to talk our way out of something. And now that business is much, much
- 27:09 – 28:33
How Important Market Size in Investment Decisions Today
- DSDavid Schneider
bigger than a billion.
- HSHarry Stebbings
Given that, how do you think about analyzing market sizes in investors today? As you said, we don't see a pathway out over a billion. Gartner specialize in market sizing. How much focus do you put on market size today when investing?
- DSDavid Schneider
I, I put a lot of focus on how big the market is, but I also don't think it's easy to understand when it's going from an on-prem world to in the cloud world. And as it becomes easier, and any time you make technology easier for the customer, the markets grow. And so I think that there's some value in understanding if I can consumerize something that was really difficult before, does that make the market grow?
- HSHarry Stebbings
How important is market timing for you in investing? You know, you mentioned there the speed to IPO and what you wanted to do, you have to hit the market just at the right time for that to be possible. For you investing today, how do you think about that?
- DSDavid Schneider
I think it's, it's true, you can be too early in markets.
- HSHarry Stebbings
Mm.
- DSDavid Schneider
Um, and it's hard to know, right, when you're too early, uh, till you make the investment, I think.
- HSHarry Stebbings
I think it's Marc Andreessen says, "There's no such thing as a bad time, bad im- bad idea, only a bad time."
- DSDavid Schneider
Yeah. I think the pain from the existing strategy has to be understood. I think that the, if you don't know what you're solving for... So when I'm, when I'm listening to founders and they're like, "Here's the reason why now is the time for X, Y or Z to be successful," I'm gonna then go validate that in our research calls, uh, with external parties to try to make sure at
- 28:33 – 30:20
How Sales Leadership Sharpens Diligence & Referencing Skills
- DSDavid Schneider
the right time.
- HSHarry Stebbings
Does being a sales leader help you on your referencing for companies? Because you are, as a sales leader, probably the most attuned to people, to listening, to knowing what question to ask. It's a real art form. Does being a sales leader help you do the best diligence in reference process?
- DSDavid Schneider
And there's a, an art of discovery, that is what we call it in sales, where you get into a conversation with a customer and you start asking questions. And that question then leads to another statement, which then you can probe around, and it's a natural conversation, like this interview is, between two new friends, and we have that discourse. So as I talk to him, be like, "Okay, well, what do you think about this? Why is this important? How would you sell it internally? What would you be taking out to be able to afford it?" Things like that become really interesting to me as I'm doing diligence. So yeah, I think it helps, but I think it's that art of the question and not being satisfied with just the first answer, but digging deeper, because the truth is usually the second or third question you ask, will, will get you closer to the truth.
- HSHarry Stebbings
And being comfortable with silence. It's one of the most important skills I think you learn as an interviewer. I, I suggest everyone always interviews, I think you become a better husband or wife, a better friend. But being able to ask a question and sit in silence can be quite awkward. But most often, magic leads after the silence.
- DSDavid Schneider
Yeah, you don't want to talk just to hear yourself talk. Um, and I tell salespeople all the time, like, "Hey, uh, you, (laughs) you got two ears and one mouth. Spend equal amount of time listening with the two ears as talking. And you should be asking questions, not just talking." And that will get you closer to a motivation, truth, a reason why to buy, et cetera, than just by
- 30:20 – 33:30
Biggest Mistakes Made at ServiceNow
- DSDavid Schneider
talking.
- HSHarry Stebbings
What's a big mistake that you made with ServiceNow? When you think about the mistakes made in that journey?I know it's all up and to the right, I know the numbers show that.
- DSDavid Schneider
Yeah.
- HSHarry Stebbings
But everyone makes mistakes.
- DSDavid Schneider
So we made a mistake. We were getting pressured down market from what I call low end competitors. Uh, uh, we call them ankle biters, which probably isn't a great term. But we started getting worried because, you know, if some of these people could get traction down there, would they ever be able to go up into our customer base? We were worried about the low end, we built a product called ServiceNow Express. It was written by the same people that wrote the enterprise product. We tried to dumb it down, we did a terrible job of dumbing it down. We brought it to market, there was interest in it. We were selling it for $10,000 to $15,000 versus $50,000 at the entry price. Did a lot of transactions and made a lot of companies unhappy. The product wasn't easy to use, it became a, a burden for us on support. And quite honestly, we were an enterprise company trying to act like something else. And what I realized is, there's 10 competitors down market. Let them go beat the crap out of each other down there. They'll drive all the investor dollars into the toilet and we'll just sit here, focus on what we do really, really well and own the market that matters. And so that's what we did, we exited a market, we made that mistake.
- HSHarry Stebbings
How quickly was the mistake apparent?
- DSDavid Schneider
Probably in the six months, we just didn't want to hear it.
- HSHarry Stebbings
How long did it take to make the decision?
- DSDavid Schneider
About a year and a half.
- HSHarry Stebbings
Uh, I've had worse. (laughs)
- DSDavid Schneider
Yeah, I mean, we were pretty, we were pretty ruthless about decisioning and, as I said, one of our strengths was make decisions quickly. At the same time, we had to be bold enough to say, "Some of the decisions I made on the journey aren't perfect. I've got to be, go chase, chase that perfection, make a different decision."
- HSHarry Stebbings
One of the biggest mistakes I see founders make that we invest in today is they want to expand customer segment too soon. They want to expand into enterprise too soon, they want to expand into SMB from enterprise too soon. And I always say, it is so much deeper and richer than you think, and we've only penetrated 1% of it. Like let's absolutely double down where our strength is. How do you think about when is the right time to expand customer segmentation? And when is the right time to say, "No, we're gonna focus"?
- DSDavid Schneider
What started happening at ServiceNow that we took advantage of was our customers started using our product in places that weren't, it wasn't, uh, originally positioned for. Turns out that by 2015, we had hundreds of customers using us in new ways. And so what we started to do is just listen, and then we productized what they did and built full-on customer service product, full-on security incident vulnerability products, full-on HR employee experience products. And because we just followed the customer, we had better success. Um, that was not easy, 'cause we ended up creating business units. I had to come up with a different selling model to sell new technology 'cause the buying persona was outside of the core. I didn't do it until I was fairly penetrated and winning in ITSM. If I didn't feel like I was already winning there, and it was not a distraction, then I could do it.
- 33:30 – 40:05
Lessons from Tackling the Multi-Product Challenge
- DSDavid Schneider
- HSHarry Stebbings
ServiceNow today and ServiceNow while you were there, I mean, it has so many products.
- DSDavid Schneider
It's incredible.
- HSHarry Stebbings
I, I mean, it's incredible. My question to you, how do you win with so many products? I mean, it is a difficult product marketing challenge, it's a different- difficult go-to-market challenge. How do you think about the lessons from this insane multi-product challenge?
- DSDavid Schneider
So I think a lot of it has to do with how we managed our teams and what we did, uh, from an extreme ownership perspective. There was one metric that mattered to everybody at ServiceNow. In fact, up until, um, recently, they had a bonus profile that was every quarter, um, we would fund a bonus pool based on the company's achievement of net new ACV, which was new business minus any churn. So everybody was worried about churn revenue and, and top line revenue, right? New business. So everyone was focused on that. Then as we started to launch these new business units, I remember when Frank and I were talking about it, and this is Frank's genius, he did it before John came in and it was like his, his parting gift to the business that is still sustainable today. We said, "We need people that are gonna wake up in the morning and care about this." Because I had a business that with ITSM and with our IT operations management products, my reps were already blowing out their numbers. So I needed to worry about the strategic issue two to three years from now. If that market ever slowed down, if we got penetrated, what was gonna be the next act? And so we actually launched four products at the same time in 2015 or 2016. I thought we were gonna kill two of them, 'cause for me to be viable, it had to be 100 million in three years. That was sort of the goal we had for each of these things. Zero to 100 million, which would equal to be some of the fastest growing startups in the Valley ever, right? Take a product from zero to 100 million in three years. We were doing that inside of ServiceNow. We did all of them at the same time. That was really, really frigging hard.
- HSHarry Stebbings
What percent of that revenue is from net new customers versus from existing that you have the benefits distribution to?
- DSDavid Schneider
In the early days, I would say, uh, by product was different. And all of my reps cared about all the revenue. So we had a land, expand, retain model. Um, we did not believe in customer success. We can talk about that too, if you want. Um, and so every rep, every SE, was responsible for the full life cycle of a customer, from the first time he got them excited about the idea of something to the time where they'd upgraded many, many times and bought other products. That's what I wanted from the people.
- HSHarry Stebbings
I, I cannot not to ask that. Why not believe in, uh, CS? We had Chris Degnan on from Snowflake, and he's like just completely denigrated CS and said that's why we don't have it and it's bullshit, basically.
- DSDavid Schneider
Frank and I, when we got to ServiceNow, there was a group called Customer Success. What I found in that group was when I asked them what do they do, they basically did three things that should have fit into other groups. They either were taking calls from customers saying, "Something's not working. Help me. Support me." Our support department was woefully under-resourced, so they weren't getting the responsiveness. So that job should have been handled by support.Get rid of that and make support do that job. I want to add more capacity, you're doing well, how do I add more licenses? That job should be done by sales. How do I configure something in my system? I'd like h- help, hands on keyboard. That should be a paid for professional service. So we got rid of customer success because quite honestly, it was a, just a make-believe organization that didn't need to exist. Lot of people get excited about it because they're worried about the churn in their business. We were 98% plus renewal rate, so I didn't have a churn problem. So how are they gonna show up and say, "What did I do that was uniquely me, that was different, that I could measure and get outcomes?" I could never get customer success people to tell me what they actually did during a day that made us make money. And so to the same problem that I said, people buy product to make money, save money. I had another problem, I had to fund more people in support, I had to fund more people in sales, and I had to build my professional services a partner ecosystem, so I got rid of it. And I brought it back slowly over time in very boutique ways, but the customers actually paid for those resources, not given away.
- HSHarry Stebbings
Do you think with the companies you work with today, do you think they should have CS teams?
- DSDavid Schneider
No. I think that many of them are coming to the same realization. I was talking to one CEO of a fairly largely scaled SaaS company, and he told me, "We are gonna be revisiting these decisions." And it's fun because, you know, I can't say to people, "I told you so," but I start planting the seed. What are they doing? What's your metric? How many do you need? By what, what's your factor? Most customer success organizations come at it with, "Hey, I need this many people for this many accounts, or for this much revenue." In every organization I think, "How do I become more efficient over time?" And so every structure, I've got to drive efficiency. How many dollars per sales headcount am I driving? How many dollars of, and, you know, f- of revenue am I driving for every engineering resource? ??? finance. So if I can't get efficiency, I'm not doing my job as a leader in a business.
- HSHarry Stebbings
We have had many people from Founders Fund on in the past, including your Brian Zingarmans of the world, who very clearly has the belief that the best founders do not need help. How do you respond and think about that?
- DSDavid Schneider
You know, my first response is, is probably 'cause he doesn't know how to help 'em. Um, maybe that's the reason. Um, I think everybody in life could always use a friend to talk to, could use, um, an honest conversation. And there is a difference, by the way, between founder friendly and founder helpful. Um, and I think I have to walk the line between what I call founder friendly, uh, I'm in your camp, but I'm gonna also tell you the truth, and I'm gonna get you ready for what's coming. And sometimes that truth is hard to hear, but I gotta be doing that. And you have to know, as a, a person like me, that your job is not to do it for somebody. Your job is to coach, guide, consult, be a mentor, almost like being a grandparent versus a parent.
- HSHarry Stebbings
What was the hardest thing about making the transition?
- DSDavid Schneider
Uh, learning that I wasn't an expert. Learning how to have a beginner's mindset on something. Not get the accolades, um, that you would, you know ... I used to travel into London or Japan and, you know, there'd be a whole team of people waiting to meet me, um, and, you know, fancy dinners and car service and all this other stuff. Eh, this is like, hey, you gotta start again at, at the beginning, add value, figure out your value to those people, and not come out with a massive
- 40:05 – 42:21
Given Advice to David on Entering Venture
- DSDavid Schneider
ego.
- HSHarry Stebbings
I'm sure y- you know, y- we have many mutual friends who are bluntly very powerful. I'm sure you had many powerful people tell you advice on entering Venture. What advice did you get?
- DSDavid Schneider
Most of them said, "Don't do it."
- HSHarry Stebbings
(laughs) .
- DSDavid Schneider
Um, most of them said, you know, "Why are you gonna take, you know, you're at the apex of your career. You could go do a CEO job if you wanted to, go be another president or CRO. Every company under the sun wants to recruit you." And to be clear, everybody called. Like, you name the top company in the Valley, they all called me looking for me to join the companies, and it still happens today. I am making a conscious decision that at this point in my life, this is what I want to do, and I'm having a lot of fun doing it.
- HSHarry Stebbings
How quickly do you know whether you like investing or not?
- DSDavid Schneider
Oh, I think it's taken me a couple years, 'cause I, I've went through a bit of a cycle. In '21 when I joined, it was let's get deals done, let's, there's a lotta pace to it. That was kind of fun. And what I, what I figured out really quickly was-
- HSHarry Stebbings
How long did it take before you did your first deal?
- DSDavid Schneider
Probably too quickly. I did my first deal in about two months.
- HSHarry Stebbings
You said before that your home is generally kind of series B, maybe series C? Uh, you know, we had Sam from Greylock on the show, and he said that actually this vintage of series B and C would not be positive cash returning to LPs. The entry price is too high, with revenue multiple compressions being where they are from public markets. It's just too difficult to make money. Do you think he's right?
- DSDavid Schneider
I think you have to be careful. I think, um, I think every, everyone needs to, every opportunity's worth diligencing on its own. And you've got to be able to underwrite what you think the value is going to be. The biggest risk factor is something starts slowing down before you expect it to. So you make the investment, you think, you've modeled it out, it's gonna go from X to Y to Z. And we usually even take a haircut on that model from whatever the company tells us. And for whatever reason, it slows down too fast, and then we don't get to the kind of return multiples we want. So again, enter Dave Schneider. My job is to help you make sure you're hitting and beating your revenue goals. So again, if you're a series B or a series C founder, the opportunity is right now. Pick the right investor for this stage of your company that's gonna make a difference
- 42:21 – 51:27
Reasons Why Businesses Plateau
- DSDavid Schneider
in your business.
- HSHarry Stebbings
What are the biggest reasons businesses plateau? We, we see so many between 50 and 100 where the growth just comes off a cliff. What are the reasons why those businesses plateau at that stage?
- DSDavid Schneider
Yeah, I think there are a couple things that I look at on why businesses plateau. First, do they know their customer?... and w- who are their customers. If you're a business selling to other young technology companies and that's your source of revenue, I'm gonna discount some of th- your future opportunity just from day one. If you had shown me proof of selling to the large enterprise or a combination of sized customers, I'm gonna believe that we can sell to other like-sized companies in the future. And the smaller companies are more susceptible to the waves of the market, especially with venture funding being hot or cold at any one point in time. If you started winning in pharmaceutical and banking and others, um, other big verticals, I think it starts to get more applicable and it stretches out more. So who are your customers, the source and quality of the revenue? Have you been through a r- a renewal cycle yet is a big question that a lot of investors miss. Okay? So I'm looking for, have they gone through a renewal cycle? What happened? Did the ACV grow at that renewal? Did they add more product to it or did it shrink or not renew? If it didn't renew, that's a big problem.
- HSHarry Stebbings
So the renewal cycle is a big pushback on the three-year contracts, because you don't get the feedback as frequently as you would an annual.
- DSDavid Schneider
Yeah.
- HSHarry Stebbings
How do you think about that lack of feedback from the longer r- cycle?
- DSDavid Schneider
So you start seeing it in RR, right? So even in year one, at ServiceNow when we sold a contract, it could be a million dollar contract, we never really fully sized what the customer could be because they didn't even know, right? They were expecting it to be a certain number of users, what have you. What happened with ServiceNow, once it got implemented, more people would start showing up to use it, it would grow. So six months after the go live of the system, we used to see 20 to 40% increase in ACV size. So I'm looking for something like that. Did they have this second product that came out? Was it welcomed in the market? If you didn't have a great first experience, you're not gonna say yes to the second product. So there are ways even in a multi-year relationship to start seeing upticks in revenue from those customers.
- HSHarry Stebbings
What happens to the generation of companies that have raised at very high prices, largely from 2020, 2021, and they've kind of plateaued and they're not moving into those valuations? What happens to them? Is it a role at play?
- DSDavid Schneider
Yeah.
- HSHarry Stebbings
Where do they go?
- DSDavid Schneider
I think we're in the process of figuring that out. I think some of them are re-accelerating the growth right now, so that's one category. Those should be fine. I really believe some of those are gonna come out really, really good and they'll be better for this journey. There's a few others where, yeah, I'm not so sure. I mean, I, I would honestly say they're probably worth more, uh, as cash (laughs) than they are as independent companies. And some of them have made the choice to refund the cash back to the investors, sell off the assets. You just, there's a couple out there that that's happened to recently. And then there's a few others that maybe they'll use the cash to come up with a second or third act, right? They, they've got enough if that founder has the fortitude and wants to continue on that journey. A lot of the founders are like, "Boy, this is hard. I'm not so sure."
- HSHarry Stebbings
I, I always think a $10 billion company needs a second or a third act. And I always say the difference between a, a billion dollar company and a $10 billion company is a founder who's able to transition between chapters. That is it.
- DSDavid Schneider
Yeah, I can see the logic of that. I think it's rare that your first product's a billion dollar product on its own. Um, there are some. Uh-
- HSHarry Stebbings
Billion dollar company, not billion dollar revenue.
- DSDavid Schneider
I'm, I'm talking billion dollar revenue.
- HSHarry Stebbings
(laughs)
- DSDavid Schneider
Billion dollar company, I think you could do with a single product-
- HSHarry Stebbings
Exactly.
- DSDavid Schneider
... from a, from an a-
- HSHarry Stebbings
Okay, yeah, yeah.
- DSDavid Schneider
... from that venture.
- HSHarry Stebbings
I'm saying $100 million revenue.
- DSDavid Schneider
Yeah. That, that's not a problem. I think about valuation a lot and I think about the steps that it dr- that you need to do to, to get there.
- HSHarry Stebbings
Have you done a deal yet where, with the benefit of hindsight, you're like, "Oh fuck, I paid too high a price?"
- DSDavid Schneider
Oh, sure. In '21, I, I definitely feel like sometimes that, that time and pl- and place we probably paid too high a price. At the same time, because I was worried about that, I missed a couple at earlier stages where I thought they were too expensive and I came back n- I looked at them in the, the A, I looked at them in the B, may have even looked at them at the C, thought they were expensive every way, and then bought in at the D. And built relationships with people who were like, "Okay, these guys have continued to pivot the right way and it's expensive for a reason." And when you have that combination of founder, market, team going on, then it's probably worth spending money on. But you've got to get really convinced that that team and that founder has got what it takes to keep going forward and making it.
- HSHarry Stebbings
Is it harder or easier to win deals than you thought?
- DSDavid Schneider
I think every great company is competitive. There's a lot of dollars chasing deals.
- HSHarry Stebbings
Do you think every great company is competitive?
- DSDavid Schneider
It's rare. And I think, um, now the, the benefit is I've had founders specifically tell me they want me on their board. And so then it's a question of can we get close enough to what expectations are c- to what makes sense. You know, there was a specific situation where it was a Lightspeed earlier stage company. Um, the founder was selecting for, uh, board members that could help scale the company and help with no route to market. And he selected Carl Eschenbach and myself. We split it around with Sequoia 50/50. And Carl and I both joined the board. Probably the two, I, I can say this for, for sure with Carl, one of the best executives out there, who knows more about revenue generation and leading companies than almost anybody in the Valley. So to be alongside of him on this journey and build out this company, or at the request of this founder, was phenomenal.
- HSHarry Stebbings
How much ownership do you need to be in that position? It's gotta be worth your time.
- 51:27 – 57:51
Is Feedback to Founders Still Valuable?
- DSDavid Schneider
as it was before.
- HSHarry Stebbings
So, Jason Lemkin, who's, uh, a friend of mine, I'm sure you know him from kind of the SaaS ecosystem.
- DSDavid Schneider
Yep.
- HSHarry Stebbings
He always says, uh, he says, "Actually, I've stopped giving feedback. I don't give feedback 'cause, you know, maybe the nicest founders will say thank you and then not listen. Um, but everyone else just says bluntly, 'Go away.' And feedback is not appreciated." To what extent do you agree with that or disagree?
- DSDavid Schneider
Feedback when you d- when you decide to make an investment or when you decide not to make an investment?
- HSHarry Stebbings
Well, let's start with when you decide not to make an investment.
- DSDavid Schneider
I try to call every founder and talk to them about the fact at least, thank you for, thanking them for the time.
- HSHarry Stebbings
How many founders do you meet a week?
- DSDavid Schneider
Oh, gosh. I'd say between four and s- eight.
- HSHarry Stebbings
That's a lot of call outs to make.
- DSDavid Schneider
It's a lot, yeah. Now, if I'm not the one leading it, my partners who are leading it, I'm sitting in those meetings. So if it's one that I'm leading, I'm gonna definitely make that call. Um, but I also tell people, um... Oh, okay. Um, I tell people that, you know, "Hey, even if I don't make the investment, call me sometime." Like, and that's a test. I wanna know if they're thinking about me as a resource, 'cause maybe there's something about it where I just didn't have the conviction yet, but I still want, I'm curious enough about the business and I'm curious about them on are they gonna ask me smart questions? Are they gonna engage? Are they gonna understand the value of David Schneider and KoTu or, you know, one of my partners on their cap table? And if they do, then that's great, and if they don't, so, so be it. I'm always in the business of matchmaking, right? So I've got this massive network of people that used to work for me that are always looking for jobs. So if somebody, again, not even in my portfolio is like, "Hey, I'm, I'm curious, I'm looking for a..." This happened last week, looking for a sales leader in Chicago. Well, I'll hit my Chicago Rolodex and say, "Hey, there's five guys in Chicago that are worth talking to." Um, you know, here, I'll make a couple introductions and go on the way.
- HSHarry Stebbings
Have you lost a deal yet?
- DSDavid Schneider
Partially.
- HSHarry Stebbings
Go on.
- DSDavid Schneider
Um, there was a deal that I got really excited about that, uh, when it came down to valuation we were, uh, we did not hit the number that the co- that the company wanted, and I'm sure glad I missed it. So that was one that I, I probably dodged a bullet 'cause it was, uh, the height of '21 and, you know, was in the billions of dollars and we, we just looked at it and said, "Uh, it's just too rich for us" and we walked away after being told we w- he wanted us to lead it and then we walked away over price. So that was a, that's, that was a good learning opportunity, but I don't know if that's a loss. There's another one where we did get, we got smaller positions than I wanted, and that's a really hard part for me, Harry, because if my position's too small, it's hard for me to dedicate the time. And so I have to try to tell these founders, "Hey, you know, this is gonna be awkward. I know you want us, you want me on the board, but I can't use one of my spots for that size check."
- HSHarry Stebbings
Why didn't you just say no? I, I n- 'cause, uh, listen, I'm by no means-
- DSDavid Schneider
It's the hardest thing.
- HSHarry Stebbings
I'm by no means the OG that you are, but I have zero time and I'm just like, "No."
- DSDavid Schneider
I've said no a couple times and one that I said yes to, I do think it's gonna be a generational company. Um, and I think they, and I really love the founder. I've known him, uh, for 10 years. So it was one of those where existing investors preempted a round, we got a smaller piece than I wanted.We- there was a commitment to try to drive more, it didn't happen. And so now we've, we've had the honest conversation about, "Hey, it's gonna be harder for me to spend the kind of time you need." And unfortunately for him, he's in the process of needing that help.
- HSHarry Stebbings
Mm-hmm.
- DSDavid Schneider
But, uh, you know, I can't... I gotta figure out what the right thing is. I wanna be friendly, but I also have a business to run and I gotta watch my time.
- HSHarry Stebbings
Do you share Vinal Khosla's view that 90% of VCs detract value?
- DSDavid Schneider
My terminology from experience is there are VCs that are seagulls, and here's my definition. They fly into a, uh, a room, or fly into a meeting, fly into, uh, a location, they basically take a shit-
- HSHarry Stebbings
(laughs) .
- DSDavid Schneider
... and they fly away. They talk a lot, they give work to do for other people to do on the management team that distracts the management team from doing anything that's important. And you've gotta control for the seagull. And this goes into the quality of the board that you're bringing on and the kinda people, it also goes into, as a management team, you need to set the tone and set the agenda for what's important to you. So for example, when I led the review of any portion of ServiceNow or Data Domain, I started with the three things that were working, that were really green, and the three things that were red. If somebody wanted to help me on something in the red, be my guest. But if you wanted to bring another thing on my list, it wasn't welcome, because I already know my business. And so having the confidence as an operator to say to the board, "This is what's going on in my business. Here's what I'm working on," that keeps the seagulls a- away, um, and it keeps them, keeps the difference.
- HSHarry Stebbings
(laughs) . So for f- so for founders listening, who there will be so many founders on their way to the office listening now, going, "That's my fucking board. That's my board." What would you advise them? Come with the three reds and the three greens?
- DSDavid Schneider
Control. And I think it is really important to control what you wanna con- have a conversation about. Set the agenda, spend time before the meeting talking to people what you wanna con- have a conversation. Don't surprise people. Give them time to do the pre-read. If any board member's coming in without doing the pre-read, that's shame on them, you actually don't need them.
- HSHarry Stebbings
Yeah.
- DSDavid Schneider
Um, they've gotta do the work too.
- HSHarry Stebbings
I always say call each board member up before and it can be five, ten minutes. But just say, "Hey David, what would you like to achieve out of this board meeting?" He said, "Hey, I'm worried about our sales efficiency." "Great, why don't I address that with you now? Have you s- resolved that?" "Yes." "Great, then we don't need to take it to the board."
- 57:51 – 1:02:09
David’s Top 3 Board Members Likes Working With
- DSDavid Schneider
for.
- HSHarry Stebbings
I'm gonna do something really unfair. Three board members that you most like to work with.
- DSDavid Schneider
Well, so Doug Leone was on my board at, at ServiceNow, um, he's on two boards I sit on now. He's phenomenal, love working with him.
- HSHarry Stebbings
What makes him so good?
- DSDavid Schneider
He's got wisdom, uh, he's been around, uh, he's practical. He also knows just about everybody and can get people together on topics very quickly. And he doesn't tell people what to do, he gives them ways of thinking about it, which is what I try to do as well. So it's a good... And he's also patient but demanding, which is kinda a little bit like me too. Like, you can be demanding, but you have to be patient to understand the cycles. And he's incredibly responsive. I mean, th- there, if I make a phone call when I was at ServiceNow to Doug, and it was very rare, usually he was calling me for advice. So, um, he was responsive to me at wherever he was in the world within seemingly like 15 minutes. I would say Mike Volpe, who's now I think in the process of retiring, um, from active, doing new, new boards. He brings an operator mentality with him. Um, the other guy that was on one of my boards, Aneel Bhusri, um, who no longer does this as a living, 'cause he started Workday, but he was on my Data Domain board and he was awesome, because of all the people he convinced the engineering and product team before they started putting hands on keyboard to go spend 100 conversations with customers to know their problems. And I think so many founders get it wrong, they rush to start building a product without knowing the customer and knowing what you're building for. And I think that kind of advice is so practical still to this day, and I think that's a lesson that I learned from Aneel.
- HSHarry Stebbings
I always say to everyone, "Hey, put everyone in support for two weeks minimum. Just hear the pain points, hear what they want, hear what they don't like. Just hear everything, it's the best way to do it." Y- uh, you have seen board members, both as an operator, now as an investor, you're the OG of OG of operations. Uh, I said the joy of my job is I-
- DSDavid Schneider
Does that mean I'm old?
- HSHarry Stebbings
No-
- DSDavid Schneider
Okay.
- HSHarry Stebbings
... it means you're an OG.
- DSDavid Schneider
Okay. Well, I don't know.
- HSHarry Stebbings
(laughs) .
- DSDavid Schneider
I thought that meant I was old.
- HSHarry Stebbings
Oh, no, no, no, no, I'm far more charming than that. But I am early in my career and I wanna be the best board member that I can be. What advice would you give to me on what I can do to be the best board member?
- DSDavid Schneider
Everyone has a superpower, right? And I think everyone's job is to find their spike and try to leverage it on behalf of the companies and people that they're dealing with on a regular basis. So for you, it's probably a bit of the networking that you have and th- your perspective on the world, your PR capability from what you do here, um, at 20VC is pretty amazing.And I think, again, pattern matching for people, because you're seeing so many different, um, situations. So I think that's probably, then also teaching-
- HSHarry Stebbings
Do you find pattern matching hard as an investor though now, because you have E- your Slootman, your Bill McDermott, you've got the best of the best CEOs in the world at a point in their career though where they've seen it all, done it all, and they're OGs. And then you're kind of translating that to a 30-year-old founder building a B2B product. And they might just be as good, they're just earlier on the curve, but you're doing a like-for-like given the experiences that you have. Is that hard?
- DSDavid Schneider
Well, so I don't compare the Frank Slootman that exists today after three IPOs to the founders, um, that I'm working with at a series B or A. That's, that's not a fair compare. I can compare, 'cause I worked with Frank at Data Domain when it was his first CEO job-
- HSHarry Stebbings
Mm-hmm.
- DSDavid Schneider
... and how he was and what he was doing to drive urgency.
- HSHarry Stebbings
I've got to ask about two people and then we'll do a quick fire. But one, uh, is the LaFont's. You work with them now. What are the biggest takeaways from working with them?
- DSDavid Schneider
The reason I picked KOTU out of all the firms I was looking at was they themselves are innovative. They themselves are entrepreneurial. They themselves are trying to build the best company in the world in the categories that they serve. They're not afraid to try something. And Thomas had great vision. He said, "The color of money isn't gonna change, it's gonna be green," in the case of the US dollar, "but the way in which we can service our investments will have to change if we want to be world-class." And so he went out and recruited guys like me and Dan and Karen and others to join the firm to make us different than everybody else who was just doing traditional growth investing.
- 1:02:09 – 1:11:50
Quick-Fire Round
- DSDavid Schneider
- HSHarry Stebbings
I wanna do a quick fire, 'cause I could talk to you all day. Uh, so I say a short statement, you give me your immediate thoughts. Does that sound okay?
- DSDavid Schneider
Sounds great.
- HSHarry Stebbings
Okay. So what do you believe that most around you disbelieve?
- DSDavid Schneider
Maybe that people are the difference makers. That if you can gret, get a group of people together who have a lot to prove, who really have the hunger to do something, that that can really make the difference in a problem. And you gotta let them run at the problem.
- HSHarry Stebbings
Biggest lesson from flying 100,000 miles a week, uh, a year.
- DSDavid Schneider
Biggest lesson is you're there for a reason. It's to go talk to customers and im- impart your wisdom on the culture of the company. Every time you're in a city, don't waste any moments. If you're not having dinner with a customer, have dinner with employees or partners. Understand that the time, the windshield time in a car with employees is valuable. Don't be distracted by your phone or your social media. Talk to them about their lives, talk about their hopes and dreams. And what you find is, people are fairly aligned, in that when they are aligned, you can do incredible things with that group of people. We all have similar hopes and dreams. We may want to get there a little differently, but it's financial security for our families, doing interesting work, maybe get promoted, taking a couple vacations a year.
- HSHarry Stebbings
Yeah.
- DSDavid Schneider
Those are the things that tend to be the most common, um, and you can really sink into that with everybody.
- HSHarry Stebbings
I always find it f- quite funny, someone said to me the other day that we spend our whole childhoods trying to fit in, and we spend all of our adulthood trying to stand out. (laughs)
- DSDavid Schneider
I went from wanting to be liked to wanting to be respected. And that was a very important lesson as I went from an individual contributor to a manager to a leader. And, you know, respect is something that's earned and, um, that's the most important thing, you know.
- HSHarry Stebbings
Do, do you agree with the shit sandwich feedback now? Like I eat a shit sandwich that's like, "Oh Dave, you did really well here, but, um, this wasn't great, but overall you're doing great." I'm- I, maybe I'm just getting old and jaded and cynical. I don't have time for a shit sandwich. "David, this could've been improved. Why wasn't it done like this?"
- DSDavid Schneider
I'm a, I'm a believer that feedback is a gift and it needs to be given frequently and as quickly to the situation as possible. And there are moments where I need it too, um, and have gotten it and I've made massive corrections on my behavior.
- HSHarry Stebbings
What was the biggest correction you made on your behavior?
- DSDavid Schneider
Uh, this is, uh, this is a little embarrassing.
- HSHarry Stebbings
Go for it.
- DSDavid Schneider
Okay. So my shit sandwich moment. Um, early days at Data Domain, I was, um, really nervous about getting the product deployed and getting a couple good experiences going. And we had a proof of value running out of a very, very large national lab in the Bay Area and the product was not working the way it was supposed to work. In fact, it was a disaster. And I'd come from big companies where responsiveness between sales and engineering was slow. And so, in my old company, big company mentality, I sent an email and I sent it with about enough flames on it that would catch a mountainside on fire, and I sent it and copied Frank Slootman thinking that Frank's gonna have my back and he's gonna go force them to go pay attention to me. And I was like, "Okay." I didn't even think about it, 'cause I'd worked for some companies where responsiveness was just not their middle name. Frank comes marching down to my office, closes the door, and I thought he was gonna say, "What can I do to help you?" Instead he said, "If I ever see another fucking email like that, that'll be the last email you send here." And he goes, "These people have been building this product for three years before we showed up. Give them the chance to be successful. Get up out of your chair, go talk to them. Ask them to go visit the customer with you, solve the problem." I immediately went over to all those people, apologized, brought them donuts and other things the next day trying to rebuild trust, 'cause I just broke trust, right? And I realized, these people were in the foxhole with me on a daily basis and I should approach it from a human perspective, "I need help. Can you help me?" Within three days, we got that thing working, flying colors.
- HSHarry Stebbings
Wow.
- DSDavid Schneider
Sold a bi- the biggest deal we ever did in the company's history. We learned a lot together because the feedback was so instantaneous. It allowed me to fix something that I could've created a mortal sin around. And I tell people all the, all the time-Go first person in a conversation. Don't send email. Talk to people, pick up the phone, go meet them if it means flying across the world to go have that conversation. Better to do it that way than having an email.
- HSHarry Stebbings
When Slootman's pissed, is everyone scared?
- DSDavid Schneider
It's not a pretty thing.
- HSHarry Stebbings
(laughs) .
- DSDavid Schneider
When I'm pissed, everybody's scared. I mean, we, we, I mean, the part-
- HSHarry Stebbings
When you have friends, "You seem so lovely." (laughs)
- DSDavid Schneider
Yeah. I'm a teddy bear till I'm not and then I'm, like, a grizzly bear. So, um, and that confuses people, 'cause I really do care deeply but there are things that, that, you know, are unacceptable to me. And, you know, now in, in hindsight, I totally understood where Frank was coming from and I respected him so much for coming to me right away. He fixed my behavior. He may not even remember that conversation, but it's one of the most cementing moments in my life around how to build great culture in a company and how to destroy culture in a company. And so that was a massive learning opportunity for me. I'll never forget it. Thankful that, that it happened.
- HSHarry Stebbings
Siri, help me.
- DSDavid Schneider
And I try to teach other people about it.
- HSHarry Stebbings
(laughs) The joys of Siri. Alwa- always helping a situation. Can I ask, Bill McDermott, one of the most hailed CEOs of all time, biggest takeaway from working with him?
- DSDavid Schneider
So I worked with Bill at the end of my ServiceNow career. He joined in a, in a kind of weird situation. We had John Donahoe, who's a great, a great human being, great CEO as well. He's now the CEO of Nike. John was on the board at Nike, got the offer of a lifetime to go be the CEO of Nike. It was something he'd always been interested in doing, and so he took it. Bill gets parachuted in on our third CEO transition in the 10 years that I was there. And what really is apparent to me is Bill understands enterprise SaaS, he understands sales as well as anybody. I, I'm really good at selling, Bill may be even better, which is, which is hard for me to admit.
- HSHarry Stebbings
What makes him so good at selling?
Episode duration: 1:11:50
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