The Exchanges

Q When you look at payback periods as an investor today, what do you like bad, good, great?

A At the IPO, um, less than 12 months is excellent. 12 to 15 is good. 15 to 20 gets concerning above 20, it's gonna be a real problem. 20 months, ok? Uh, at the Series A, less than 12 is a, it's almost like you're probably being too efficient. Like, we could probably, like, try to grow faster. Um, 12 to 15 is really good. 15 to 20 is fine. It's kind of like, that's fine for now. We'll have to work on it later. Above 20, it gets concerning. Yeah, so you kind of have, like, some semblance, but there's a little more flexibility at the Series A, because we know that there's a lot of, there's a lot of improvement that's just going to come with scale, potentially, um, and then there's a lot of opportunities and low-hanging fruit for us to get to that just isn't a priority right now.

AI assessment note: “less than 12 months is excellent. 12 to 15 is good.”

Q just, I don't know what I'm doing here, so you're gonna help me. Um, for my first sales hire then, I've got us to 700 K in ARR. Um, do I have someone who's sold to customers like mine before, or do I have someone who's sold deal sizes like mine before? If you could have one deal size or a category that they've experienced before, which would you rather?

A I have strong conviction that deal size has a higher weight. In correlation to success. Let's just say we, we sell million dollar deals to banks. And I have two candidates. One candidate sells 10,000 dollar deals to banks. And one candidate sells million dollar deals to hospitals. The skill necessary to get a million dollar deal done It's just like, there's so much in there in terms of like, how do I identify and build a good champion? How do I understand the political dynamics? How do I differentiate between an economic buyer, a technical buyer and end user, a coach and a champion? How do I like understand medic as a sales process? How do I like deal with procurement? How do I deal with legal? My million dollar seller that sells to healthcare has all those skills. My person that sells to banks, but they sell 10,000 our deals has none of those skills. So I'm much better. I'll be much easier for me to teach the million dollar seller about banks Than it is for me to teach a 10,000 dollar transactional seller how to do all that other stuff.

AI assessment note: “I have strong conviction that deal size has a higher weight.”

Q What about money and incentive packages? Any big lessons there on what? Advise me. I've, I've never hired a sales team before. Never hired a rep before. How should I do it? How should I structure it? What do you advise me?

A What most people do, which is, I think a big mistake is they hire a sales person or leader and sort of delegate it to them because they sort of like are the functional expertise. Expert on it. And then that person uses the sales comp model from their last company. That's really broken. That's not good. A lot of founders don't realize is you can get pretty creative here, especially in the early stages. And the best way to devise a comp plan is to think about what you need the business to do in the next six to 12 months strategically. Don't even think about sales, just strategically, holistically. Are any of those reinforceable With sales person behavior or action. And if so, that's going to start deciding your comp plan. So I'll give you some really common examples. First off, which is like semi related to that point. I don't like commission plan salespeople in the journey to product market fit. Like I just want pure equity people. Like if I, if we're trying to find product market fit, if we have three design partner customers and we need to get to like. 20. To understand product market fit. Am I going to bring on a salesperson to help us do that? And that person's making, say, one 50, like 75 base 75 commission. I don't want to put them on a comp plan. I want to like, I'm going to say like, listen, I'm going to pay you like one 25 flat out. No matter what, with some equity, tha…

AI assessment note: “the best way to devise a comp plan is to think about what you need”

Q just, I don't know what I'm doing here, so you're gonna help me. Um, for my first sales hire then, I've got us to 700 K in ARR. Um, do I have someone who's sold to customers like mine before, or do I have someone who's sold deal sizes like mine before? If you could have one deal size or a category that they've experienced before, which would you rather?

A I have strong conviction that deal size has a higher weight. In correlation to success. Let's just say we, we sell million dollar deals to banks. And I have two candidates. One candidate sells 10,000 dollar deals to banks. And one candidate sells million dollar deals to hospitals. The skill necessary to get a million dollar deal done It's just like, there's so much in there in terms of like, how do I identify and build a good champion? How do I understand the political dynamics? How do I differentiate between an economic buyer, a technical buyer and end user, a coach and a champion? How do I like understand medic as a sales process? How do I like deal with procurement? How do I deal with legal? My million dollar seller that sells to healthcare has all those skills. My person that sells to banks, but they sell 10,000 our deals has none of those skills. So I'm much better. I'll be much easier for me to teach the million dollar seller about banks Than it is for me to teach a 10,000 dollar transactional seller how to do all that other stuff.

AI assessment note: “I have strong conviction that deal size has a higher weight.”

Q When you look at payback periods as an investor today, what do you like bad, good, great?

A At the IPO, um, less than 12 months is excellent. 12 to 15 is good. 15 to 20 gets concerning above 20, it's gonna be a real problem. 20 months, ok? Uh, at the Series A, less than 12 is a, it's almost like you're probably being too efficient. Like, we could probably, like, try to grow faster. Um, 12 to 15 is really good. 15 to 20 is fine. It's kind of like, that's fine for now. We'll have to work on it later. Above 20, it gets concerning. Yeah, so you kind of have, like, some semblance, but there's a little more flexibility at the Series A, because we know that there's a lot of, there's a lot of improvement that's just going to come with scale, potentially, um, and then there's a lot of opportunities and low-hanging fruit for us to get to that just isn't a priority right now.

AI assessment note: “less than 12 months is excellent. 12 to 15 is good.”

Q Now, I would love to start. How did you first make your way into the world of sales, and when did you know that, like, sales was really one of your loves?

A It was a lot, like, a lot of the wins in my career. It was completely serendipitous, uh, almost accidental. Um, you know, I was Uh, at 23, I discovered that I wanted to be an entrepreneur, and even to this day, I kind of consider myself more of an entrepreneur than a sales leader. Even though I was a founder CEO coming out of school, I knew I wanted a functional alignment, and I was torn between marketing and sales. I was like, I really, like, there's not a lot of MBAs that go into sales, so that's weird, but I really love the art of the deal. And I know generally speaking in tech salespeople make more than marketers and I had a young family and like I was the financial, you know, responsible for that. So like that was important and an ingredient, but I felt like the MBA provided you more for marketing. Marketing was going more in a data-driven direction. I was consulting to HubSpot when it was like one or two people and eventually joined the company as the fourth employee. And that's where it serendipitously kicked in because Halligan was the co-founder and he is a sales guy, you know, and he was like, if we're going to use you one day a week, a consultant, I want you to sell. And so that's how I got into sales. Like I didn't, I was like, all right, cool. Like Dharmesh hired me for one day a week. You're now the CEO. If you want me to sell, I'll sell. If you want me to write c…

AI assessment note: “he was like, if we're going to use you... I want you to sell.”

Q What's the right way to solve that then? Because I'm just taking a say, it's like a 10 K PLG product and like a 10 K is kind of the entry price, but we want them to scale to a hundred K as a company. You don't want to pay a hundred K upfront, get hit with cashflow problems in that way.

A I would do something like this, Harry, you're a salesperson, your job is bringing customers. I'm going to pay you, um, you know, three percent. Rate on the first ACB from a customer and five percent on any expansion revenue. So now it's like, oh, sweet. Okay. I get it. So I will make the most money if I sell customers on a very small ACB to start and expand them later. Yes, that's what you do. And then the salesperson is like, wait, wait, wait, wait, am I a CSM now? No, no, you just go hunt. You, you go hunt, you sign up customers, and we have a CSM team that on boards them, and they, they expand them. They have their own comp, different comp plan. They have their incentives too. That's just how yours works. If you sign up good, healthy customers with good expectations, you make a lot of money. If you sign up a bunch of crappy customers that don't stick around and don't expand, you're not going to make a lot of money.

AI assessment note: “pay you, um, you know, three percent. Rate on the first ACB”

Q You're an investor today. Do you invest in a company that serves SMBs with three to four percent churn rates?

A We do invest in companies that serve SMBs. That's become like a really great starting point, and you can build a healthy business there, but more importantly, use that success to move upstream to the mid-market when your product and brand and your sophistication justifies it, and then eventually to the enterprise, potentially. These are very common plays. But, um, yeah, with three to four percent, nah, not a lot. I mean, you have to have a lot of other things going right, because actually you just don't have a business. Now, when you are, if you do want to make your business work in SMB, You just need a really healthy up expansion motion because I just macroeconomics because of like small business bankruptcy and budget sensitivities at, if you're doing really well, you probably have an 80%, 85% logo retention in SMB. So you need to have at least a greater than 15% revenue expansion. To get your business to be solid. To get your revenue retention to be above a hundred percent. Which is like, it's doable. And that's why PLG is beautiful. Because like most, in PLG, most starting ACVs is zero. It's all expansion. Right. And so only the people that have already seen value in your product start with revenue and that usually sticks very nicely and then continues to expand. So SMB is very doable. It's just like, you probably have to start them on lowest ACVs and you have to have a real…

AI assessment note: “with three to four percent, nah, not a lot.”

Q What about money and incentive packages? Any big lessons there on what? Advise me. I've, I've never hired a sales team before. Never hired a rep before. How should I do it? How should I structure it? What do you advise me?

A What most people do, which is, I think a big mistake is they hire a sales person or leader and sort of delegate it to them because they sort of like are the functional expertise. Expert on it. And then that person uses the sales comp model from their last company. That's really broken. That's not good. A lot of founders don't realize is you can get pretty creative here, especially in the early stages. And the best way to devise a comp plan is to think about what you need the business to do in the next six to 12 months strategically. Don't even think about sales, just strategically, holistically. Are any of those reinforceable With sales person behavior or action. And if so, that's going to start deciding your comp plan. So I'll give you some really common examples. First off, which is like semi related to that point. I don't like commission plan salespeople in the journey to product market fit. Like I just want pure equity people. Like if I, if we're trying to find product market fit, if we have three design partner customers and we need to get to like. 20. To understand product market fit. Am I going to bring on a salesperson to help us do that? And that person's making, say, one 50, like 75 base 75 commission. I don't want to put them on a comp plan. I want to like, I'm going to say like, listen, I'm going to pay you like one 25 flat out. No matter what, with some equity, tha…

AI assessment note: “I don't like commission plan salespeople in the journey to product market fit.”

Q What's the right way to solve that then? Because I'm just taking a say, it's like a 10 K PLG product and like a 10 K is kind of the entry price, but we want them to scale to a hundred K as a company. You don't want to pay a hundred K upfront, get hit with cashflow problems in that way.

A I would do something like this, Harry, you're a salesperson, your job is bringing customers. I'm going to pay you, um, you know, three percent. Rate on the first ACB from a customer and five percent on any expansion revenue. So now it's like, oh, sweet. Okay. I get it. So I will make the most money if I sell customers on a very small ACB to start and expand them later. Yes, that's what you do. And then the salesperson is like, wait, wait, wait, wait, am I a CSM now? No, no, you just go hunt. You, you go hunt, you sign up customers, and we have a CSM team that on boards them, and they, they expand them. They have their own comp, different comp plan. They have their incentives too. That's just how yours works. If you sign up good, healthy customers with good expectations, you make a lot of money. If you sign up a bunch of crappy customers that don't stick around and don't expand, you're not going to make a lot of money.

AI assessment note: “I'm going to pay you, um, you know, three percent. Rate on the first ACB”

Q point would be that, hmm, Yeah, there's always a game with numbers though, Mark, isn't there? What's included in your CAC? And I've had some where it's like, well, it's just my marketing spend, or it's just my outbound sales team. And it's like, well, that doesn't, that doesn't count. It's not quite that. What should be included in a CAC for a founder to truly understand their actual payback?

A Yeah, so at scale, it's going to be like on your income statement, the entire sales and marketing line. Is going to be the CAC and you divide that by the number of customers that are acquired in that period, let's say in a quarter that you're evaluating. Now that gets challenging at the series A because if the founders are selling, well, then you have to attribute a part of their salary hypothetically. And if like. You're throwing just general networking events for the company and that's leading to leads is that. So there's always these squishy costs, but like at the. Just to keep it simple, everything you're spending on marketing, and salespeople, and sales leadership, and sales ops, and all that kind of stuff needs to go in there.

AI assessment note: “the entire sales and marketing line. Is going to be the CAC”

Q You're an investor today. Do you invest in a company that serves SMBs with three to four percent churn rates?

A We do invest in companies that serve SMBs. That's become like a really great starting point, and you can build a healthy business there, but more importantly, use that success to move upstream to the mid-market when your product and brand and your sophistication justifies it, and then eventually to the enterprise, potentially. These are very common plays. But, um, yeah, with three to four percent, nah, not a lot. I mean, you have to have a lot of other things going right, because actually you just don't have a business. Now, when you are, if you do want to make your business work in SMB, You just need a really healthy up expansion motion because I just macroeconomics because of like small business bankruptcy and budget sensitivities at, if you're doing really well, you probably have an 80%, 85% logo retention in SMB. So you need to have at least a greater than 15% revenue expansion. To get your business to be solid. To get your revenue retention to be above a hundred percent. Which is like, it's doable. And that's why PLG is beautiful. Because like most, in PLG, most starting ACVs is zero. It's all expansion. Right. And so only the people that have already seen value in your product start with revenue and that usually sticks very nicely and then continues to expand. So SMB is very doable. It's just like, you probably have to start them on lowest ACVs and you have to have a real…

AI assessment note: “with three to four percent, nah, not a lot.”

Q point would be that, hmm, Yeah, there's always a game with numbers though, Mark, isn't there? What's included in your CAC? And I've had some where it's like, well, it's just my marketing spend, or it's just my outbound sales team. And it's like, well, that doesn't, that doesn't count. It's not quite that. What should be included in a CAC for a founder to truly understand their actual payback?

A Yeah, so at scale, it's going to be like on your income statement, the entire sales and marketing line. Is going to be the CAC and you divide that by the number of customers that are acquired in that period, let's say in a quarter that you're evaluating. Now that gets challenging at the series A because if the founders are selling, well, then you have to attribute a part of their salary hypothetically. And if like. You're throwing just general networking events for the company and that's leading to leads is that. So there's always these squishy costs, but like at the. Just to keep it simple, everything you're spending on marketing, and salespeople, and sales leadership, and sales ops, and all that kind of stuff needs to go in there.

AI assessment note: “everything you're spending on marketing, and salespeople, and sales leadership, and sales ops”

Q Okay. So tell me what are the biggest mistakes startups make with channel partnerships?

A Yeah, exactly what you said, Harry, which is just like a complete underestimate of what it takes to actually mobilize that partner. And it's, I get why they're doing it. It's like, we're going back to our product founder and they're like, yeah, we have like 10 design partners and 10 design customers. And now we have to go acquire a bunch of customers. And I have two options. Option A is hire a big, expensive, scary sales team. That's going to destroy my culture. I don't know how to hire our salespeople. Or just go partner with Workday who already has 5000 salespeople and I'll just give them 20% of my profit. Why wouldn't they ever want to do that? That's, it makes perfect sense. And it's just like, first off, do you even know how to get into Workday's program? Like you need to like, Really have good alignment with as high up as possible to do that. Second off, do you even know how to get the mindshare, the rep? Imagine being a workday salesperson. You worked for hours to get 30 minutes with a customer. What are you pulling out of your bag to show them? Some startup's little product that I get a five percent spiff on? No. You know what I mean? So, to really mobilize, you have to understand what the strategy at the C-level is, and make a case that your product aligns with that, and then convince them to spiff the crap out of their reps, so they're motivated to pull it out of thei…

AI assessment note: “a complete underestimate of what it takes to actually mobilize that partner.”

Q law of SMBs in terms of it being a great business to serve and not needing to scale necessarily into enterprise. But you invest today in amazing SaaS founders and I'm sure you see them say, ah, we're thinking about scaling into enterprise. How do you advise founders that you work with or advise me in terms of when is the right time or at all to scale into enterprise?

A Both answers could be correct. I will say that it is extremely rare that you want to go into enterprise south of a couple million in revenue. Extremely rare. You almost have to like, like obviously like a company like SpaceX, there's no SMB play. You know what I mean? Like you're selling Your proposition is to put satellites in space. Like you're selling to major governments, whatever. So that's fine. That's a great business. But you got to raise like hundreds of millions of revenue before you even have a customer. Just a different type of business, different type of investor. That's not what stage two does is not what I do. So it's a little bit of a trap for most entrepreneurs to want to go to the enterprise too early. A lot of my students do this, you know, like, oh, if I can just get that huge logo, everybody else will follow. Well, two problems with that. Number one, you don't, you really underestimate what it's like to get that logo. It's going to take a long time, maybe a year and a half. And whoever's your champion, you might quit their job in that time. And by the time you get to the finish line, you're gonna have to do socks compliance and show all this stuff and you don't have it. So it's like, it's just going to kill you from a capital standpoint. And so your better bet is to figure out what your product is. What you're offering is, figure out your total adjustable m…

AI assessment note: “it is extremely rare that you want to go into enterprise south of a couple million”

Q Can I ask, I had Dave Kellogg on the show there, and he said that he loves, uh, GRR, gross revenue retention, and it's much more telling than net revenue retention. How do you think about net revenue retention versus gross revenue retention for founders listening going, oh, which one?

A I think they're both needed. I probably put more weight in, uh, net revenue retention because at the end of the day, if you have a 120% net revenue retention, Then you're going to grow 20% a year without acquiring any customers. That's really powerful, ok? Whether that means you have 90%, you know, customer attention with 30% expansion, and that's how you get to the 120, or you have 50% customer attention with, um, 70% revenue expansion, and that's how you get to a 120. Either way, you're going to grow by 20% a year if you keep that up. Now that's what, that's why I think that's the most important. Okay. Now, if the problem with the ladder of having 50%, uh, you know, customer attention with 70% expansion. Yeah. The customers that stick with you are seeing a lot of value and paying more, but that means half the world out there are being like, yeah, I tried Harry's product and it didn't work for me. That's not good. That's why I want to look at customer attention. But like, I kind of think net revenue attention is more. More important. This is my view.

AI assessment note: “I probably put more weight in, uh, net revenue retention”

Q And do you think that when you're advising founders, it's great to get like just sheer volume, number of customers through the door, volume, volume, or actually. Or quality of those logos?

A Well, okay. Good question. Like, you have to be specific about your ICP and like, um, pushing folks out. Now, very early, it's a hypothesis. So let's say like, if you take the whole world and ultimately your ICP is going to be say like five percent of that, Well, I might be okay. I'll sell into like 10 to 12% and join a little bigger circle. Cause we just don't know, but like there's some folks I like to do like a green, yellow, red. I have different attributes. Like, you know, how many employees were they located in the world? What sectors are they in these types of things? Right. And the green is like, we have strong conviction that those are good fits right between, between 5500 employees based in the U S in tech. That's green. And we're going to go after those all day. So when our SDRs are cold calling, they're only cold calling those people. Then there's reds where we have strong conviction. We will not sell. In fact, you cannot sell them. Okay. So that might be outside of English speaking territories. Uh, that might be, um, healthcare nonprofit government, and it might be like greater than 10,000 employees. Those are red. You are not allowed to sell them. Yellow is you can sell them if they're inbound. So we're not going to cold call them, but if they come inbound, we don't have enough conviction to know that they're not a fit. We also don't have enough conviction to like…

AI assessment note: “you have to be specific about your ICP and like, um, pushing folks out.”

Q How fast do you know when you've made a mess hire?

A It takes a while. I haven't had a lot of those situations where, because I think we've been pretty rigorous on hiring. That, like, we would have weeded that out, and I have a lot of situations where I had a rep that was in there for three or four months, and we weren't sure, and they weren't hitting it, but we gave it a shot, and seven months in, they were toward the top, and they stayed there. So that was perplexing to me, Harry, because, like, I want, I want a lot of early knowledge and lead indicators, so, but I've seen that happen quite a bit. It just took them a little while, them a little while to get there, And the only thing I can say early on kind of comes back to that coachability again. If I, if I have a manager come to me and say, Oh yeah, Pete's not working out. And I'll say, how do you know? Like, well, look at their numbers. And I'm like, okay, well, what are you coaching Pete on? And I, well, we're trying to get him to do a little better job on sense of urgency development. And I'll say, okay, how are you coaching him? So now I can assess if the manager's got a good diagnosis and good coaching model. And then I'm like, okay, when you're coaching them, are they staying? When you move them up a little bit, are they staying there or are they, are they there for a week and then they go down? If they're going up for a week and go down, yeah, we probably need to make …

AI assessment note: “It takes a while. I haven't had a lot of those situations”

Q Should young companies be worried about giving away VP of sales or head of sales too early because it makes it difficult to layer or not?

A I don't think it does. You know, I, to your point, I think it's a red flag for the candidate, but if I have a star and I have to give them a VP of sales title instead of director, Or a CRO title instead of VP to get them to do the job I see for them for the next 18 months and then assess? I don't see it being an issue. Like, it's like, ok, I hire someone, they kill it for 18 months, and then after that we decide we've got to up-level them. In one case, their, their title is director of sales. In another case, their title is VP of sales. I don't think that's harder.

AI assessment note: “I don't think it does... I don't see it being an issue.”

Q How do I, how do I convince them to spiff? I'm so sorry, what is spiff in the UK?

A It's like, it's like a commission bonus. Ok, so let me give you an example. This happened. Okay. No, I'm not incentivizing with drugs. No, so I'm sorry. It's like a little, it's a little like one-off bonus. Okay. So, um, I'll give you an example. Salesforce.com was an early investor in our Series D, believe it or not, and actually became a big channel partner for us over time, about 10% of our customers before we became competitive. And so, here's an example of what happened. We had contacts really high up, um, George Hugh, I think it was, who was COO, and he eventually got us Benioff's ear. And we heard, at the time, Salesforce wasn't in marketing yet, in the marketing cloud. We also heard that the number one sales objection and reason for close lost was, hey, cool, you get me, you organize my leads for me and my deals, but I, my biggest issue is getting more leads. And the salesforce.com sales reps didn't know how to talk about demand generation. Benioff knew it. And he's like, okay, we need to find partners that can help us with demand gen and help us train our reps how to talk about demand gen. And George is like, I got this new company at HubSpot. That's really cool. So he started to learn about us and Benioff's like, whoa, this is exactly what we need. So he's like, Benioff looks at all the partner, all the different things that are in their App exchange, DocuSign, all th…

AI assessment note: “It's like, it's like a commission bonus.”

Q Okay, I'm in this process hiring our sales rep or our first sales edition. What are the must-ask questions, Mark, that I should ask?

A I love getting into a role play. You know? And so like, that's the most important part is this part where it's like, okay, Harry, you know, um, let's say we're selling, we're, we're hiring for HubSpot. It's like, uh, let's just pretend you're, uh, a small business owner and you downloaded the HubSpot inbound marketing ebook yesterday and you got the lead. Let's just do the first call. And so we'll do the call. And I'm looking at things like really good, open-ended questions, follow on questions to do discovery and qualify need. And quantifying need. And I'm, I'm hoping that there's no show up and throw up and they give me like a five minute commercial on HubSpot that I could have just read online. Otherwise we get a, probably not going to hire them. And then I'll stop the interview a couple minutes in, have you, and then I'm going to assess coachability. Because like, you know, in most startup contexts, No one's going to come out of the gate hitting their productivity in month one. Like they have to learn the product, the methodology, the customer. So I'm assessing their ability to be coached. And so I'll have you self assess. And if you're like that, I was awesome. I have no feedback for myself. Then that's a red flag. Most people are pretty introspective and, and can analyze their pros and cons. Every interview, I give a piece of positive feedback and a piece of need for impr…

AI assessment note: “I love getting into a role play. You know? And so like, that's the most important part”

Q Okay, I'm in this process hiring our sales rep or our first sales edition. What are the must-ask questions, Mark, that I should ask?

A I love getting into a role play. You know? And so like, that's the most important part is this part where it's like, okay, Harry, you know, um, let's say we're selling, we're, we're hiring for HubSpot. It's like, uh, let's just pretend you're, uh, a small business owner and you downloaded the HubSpot inbound marketing ebook yesterday and you got the lead. Let's just do the first call. And so we'll do the call. And I'm looking at things like really good, open-ended questions, follow on questions to do discovery and qualify need. And quantifying need. And I'm, I'm hoping that there's no show up and throw up and they give me like a five minute commercial on HubSpot that I could have just read online. Otherwise we get a, probably not going to hire them. And then I'll stop the interview a couple minutes in, have you, and then I'm going to assess coachability. Because like, you know, in most startup contexts, No one's going to come out of the gate hitting their productivity in month one. Like they have to learn the product, the methodology, the customer. So I'm assessing their ability to be coached. And so I'll have you self assess. And if you're like that, I was awesome. I have no feedback for myself. Then that's a red flag. Most people are pretty introspective and, and can analyze their pros and cons. Every interview, I give a piece of positive feedback and a piece of need for impr…

AI assessment note: “I love getting into a role play. You know? And so like, that's the most important part”

Q When you're investing, say a net revenue retention of one 20 is good for founders. Like, how do you think about good and great?

A At some point you need to get above a hundred percent. Because if you're not above a hundred percent net revenue retention, That just means you're like, in order to grow, you have to outsell that gap with new customers. Okay, so like, if you're at like, ten million in revenue, that's not that hard. If you're at ten million in revenue, and you have 90% revenue attention, that means that you start the year, your customers are paying you ten million, and those customers will be paying you nine million at the end of the year. And so you just need to sell a million dollars in new software to break even, to maintain flat, And you need to sell five million of software to grow by 40%. That's not that hard. But once you get to a billion in revenue, And you have a 90% net revenue retention. That means that at the end of the year, you're going to have nine hundred million. So you have to sell a hundred million dollars of new contracts to new customers just to remain flat. And two hundred million of new software to new customers to grow by 10%. That is hard. Versus if you're at a billion and you have a 110% net retention, you can do nothing In new sales and you're going to grow by 10%. So at some point it just like you can't outsell our net revenue attention less than a hundred percent.

AI assessment note: “At some point you need to get above a hundred percent.”

Q Should young companies be worried about giving away VP of sales or head of sales too early because it makes it difficult to layer or not?

A I don't think it does. You know, I, to your point, I think it's a red flag for the candidate, but if I have a star and I have to give them a VP of sales title instead of director, Or a CRO title instead of VP to get them to do the job I see for them for the next 18 months and then assess? I don't see it being an issue. Like, it's like, ok, I hire someone, they kill it for 18 months, and then after that we decide we've got to up-level them. In one case, their, their title is director of sales. In another case, their title is VP of sales. I don't think that's harder.

AI assessment note: “I don't think it does.”

Q teams selling three K ACVs and they say, ah, but you know, if we prove it and if we do this and this and this, then it'll expand to 30 K and truth be told, it rarely does. And so we have this kind of enterprise sales cost base For a PLG pricing that doesn't often expand. At what price point does it make sense to have a sales team?

A Yeah, like even in HubSpot, we started at like 3000 a year. I would say that's on the lower end. Okay. Now that required a lot of inbound leads, right? So like that, there's a big missing part to that is like the ACV is only one portion to answer like whether or not our go to market motion is working. Whether we have a salesperson or PLG, or we're using marketing inbound, or we're doing cold calling, whatever. The absolute right answer comes down to unit economics. And there's a couple of different ways to measure you in economics. Let's just say payback period, which is the, um, the CAC divided by the ACV is, you know, you probably should take ACV times gross margin, but like, let's just say, so it's like, let's keep it simple. Someone pays us, um, 10,000 dollars a year, then the, the CAC needs to be 10,000 dollars for us to have a payback period of a year, right? So if someone pays us 10,000 dollars a year, And it costs us 10,000 dollars to acquire them. We get paid back in 12 months, right? Anything above that, you start to question whether your economics work, anything below that, it's, it's really good. So the problem is ACV is only one part of that formula, Harry. So the CAC is the other piece. And the CAC for outbound sales teams is all over the place, because it depends on, like, how many calls do you have to make to get an appointment? How many of those appointments tu…

AI assessment note: “we started at like 3000 a year. I would say that's on the lower end.”

Q Can I ask, I had Dave Kellogg on the show there, and he said that he loves, uh, GRR, gross revenue retention, and it's much more telling than net revenue retention. How do you think about net revenue retention versus gross revenue retention for founders listening going, oh, which one?

A I think they're both needed. I probably put more weight in, uh, net revenue retention because at the end of the day, if you have a 120% net revenue retention, Then you're going to grow 20% a year without acquiring any customers. That's really powerful, ok? Whether that means you have 90%, you know, customer attention with 30% expansion, and that's how you get to the 120, or you have 50% customer attention with, um, 70% revenue expansion, and that's how you get to a 120. Either way, you're going to grow by 20% a year if you keep that up. Now that's what, that's why I think that's the most important. Okay. Now, if the problem with the ladder of having 50%, uh, you know, customer attention with 70% expansion. Yeah. The customers that stick with you are seeing a lot of value and paying more, but that means half the world out there are being like, yeah, I tried Harry's product and it didn't work for me. That's not good. That's why I want to look at customer attention. But like, I kind of think net revenue attention is more. More important. This is my view.

AI assessment note: “I probably put more weight in, uh, net revenue retention because”

Q And do you think that when you're advising founders, it's great to get like just sheer volume, number of customers through the door, volume, volume, or actually. Or quality of those logos?

A Well, okay. Good question. Like, you have to be specific about your ICP and like, um, pushing folks out. Now, very early, it's a hypothesis. So let's say like, if you take the whole world and ultimately your ICP is going to be say like five percent of that, Well, I might be okay. I'll sell into like 10 to 12% and join a little bigger circle. Cause we just don't know, but like there's some folks I like to do like a green, yellow, red. I have different attributes. Like, you know, how many employees were they located in the world? What sectors are they in these types of things? Right. And the green is like, we have strong conviction that those are good fits right between, between 5500 employees based in the U S in tech. That's green. And we're going to go after those all day. So when our SDRs are cold calling, they're only cold calling those people. Then there's reds where we have strong conviction. We will not sell. In fact, you cannot sell them. Okay. So that might be outside of English speaking territories. Uh, that might be, um, healthcare nonprofit government, and it might be like greater than 10,000 employees. Those are red. You are not allowed to sell them. Yellow is you can sell them if they're inbound. So we're not going to cold call them, but if they come inbound, we don't have enough conviction to know that they're not a fit. We also don't have enough conviction to like…

AI assessment note: “you have to be specific about your ICP and like, um, pushing folks out.”

Q Can I ask, in terms of the evolution, I think the hardest thing is often for founders to transition from a founder-led sales motion to a sales team-led sales motion. What do you advise founders who are struggling in that transition?

A Yeah, it's a really hard one, and it's a key piece to the stage two capital, um, thesis is that's exactly the entry point that we like to come in at. Cause usually these, like a founder, a lot of founders today are product and engineering oriented and don't have a lot of experience in sales. So they gravitate toward, like, every time I ask them, what are you looking for? They always say the same thing. 10 years of experience selling a product like mine to a customer like mine. And there's tremendous research that shows that that mindset correlates with lack of success, like doesn't work out. And it's not that it doesn't help. It's just that there's a whole bunch of other things you need to assess largely around sales skills that are not looked at. And because of that, you end up with the bottom 25% performers in your industry. And so that, that's the biggest pothole. Now, how do you teach a founder? Essentially what that means is a founder needs to learn how to assess a seller on sales skills. And that's like saying to a salesperson, challenging them to assess an engineer and how well they write Java. It's hard to do. Like you almost have to go to school for five years. So it's kind of the same thing. So it's, it's difficult. I can't just like say a statement And like, you learn it in a minute. But what I can say is, go find an advisor, Harry. Go find an advisor, because like, …

AI assessment note: “what I can say is, go find an advisor, Harry.”

Q How fast do you know when you've made a mess hire?

A It takes a while. I haven't had a lot of those situations where, because I think we've been pretty rigorous on hiring. That, like, we would have weeded that out, and I have a lot of situations where I had a rep that was in there for three or four months, and we weren't sure, and they weren't hitting it, but we gave it a shot, and seven months in, they were toward the top, and they stayed there. So that was perplexing to me, Harry, because, like, I want, I want a lot of early knowledge and lead indicators, so, but I've seen that happen quite a bit. It just took them a little while, them a little while to get there, And the only thing I can say early on kind of comes back to that coachability again. If I, if I have a manager come to me and say, Oh yeah, Pete's not working out. And I'll say, how do you know? Like, well, look at their numbers. And I'm like, okay, well, what are you coaching Pete on? And I, well, we're trying to get him to do a little better job on sense of urgency development. And I'll say, okay, how are you coaching him? So now I can assess if the manager's got a good diagnosis and good coaching model. And then I'm like, okay, when you're coaching them, are they staying? When you move them up a little bit, are they staying there or are they, are they there for a week and then they go down? If they're going up for a week and go down, yeah, we probably need to make …

AI assessment note: “It takes a while.”

Q When you're investing, say a net revenue retention of one 20 is good for founders. Like, how do you think about good and great?

A At some point you need to get above a hundred percent. Because if you're not above a hundred percent net revenue retention, That just means you're like, in order to grow, you have to outsell that gap with new customers. Okay, so like, if you're at like, ten million in revenue, that's not that hard. If you're at ten million in revenue, and you have 90% revenue attention, that means that you start the year, your customers are paying you ten million, and those customers will be paying you nine million at the end of the year. And so you just need to sell a million dollars in new software to break even, to maintain flat, And you need to sell five million of software to grow by 40%. That's not that hard. But once you get to a billion in revenue, And you have a 90% net revenue retention. That means that at the end of the year, you're going to have nine hundred million. So you have to sell a hundred million dollars of new contracts to new customers just to remain flat. And two hundred million of new software to new customers to grow by 10%. That is hard. Versus if you're at a billion and you have a 110% net retention, you can do nothing In new sales and you're going to grow by 10%. So at some point it just like you can't outsell our net revenue attention less than a hundred percent.

AI assessment note: “At some point you need to get above a hundred percent.”