Feb 26, 2019 · 50m · a16z
a16z Podcast | Product-Market SALES Fit (What Comes First?)
Jyoti Bansal · 21m spoken Peter Levine · 12m spoken Satish Thaluri · 7m spoken Sonal Chokshi · 6m spoken
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of the a16z enterprise GTM podcast series, host Sonal Chokshi, venture capitalists Peter Levine and Satish Thaluri, and AppDynamics founder Jyoti Bansal discuss 'Product-Market Sales Fit.' They share actionable strategies on aligning product features with sales motions, pricing for value, executing multi-product expansions, and scaling enterprise revenue across ARR milestones.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. The host holds 14.3% of the talking time here. How this is scored →
The host as informed peer 3.3 Guest teaching 3.2 Guest disagreement 0.9 The host pushing back 2.2
speaking balance: gold is the host, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 9:24 Jyoti rejects Steve Jobs category creation premise
Jyoti firmly counters Sonal's suggestion that founders can invent markets out of thin air like Steve Jobs, insisting that a concrete 10x problem must always pre-exist.
Hardest push from the host ▶ 16:10 Sonal challenges professional services as margin killerSonal explicitly confronts the guest on professional services, raising the standard venture consensus that services dilute software gross margins.
Biggest teaching moment ▶ 17:45 Peter and Jyoti reframe services around blended margins and retentionJyoti and Peter show how initial low-margin services unlock million-dollar software contracts and boost multi-year renewal margins, reframing the host's focus on unit margin.
The host holds their own ▶ 26:35 Sonal connects sales learning curves to psychological research methodologySonal actively synthesizes the discussion by introducing an analogy from developmental psychology regarding the isolation of experimental variables to explain GTM team structure.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The host as informed peer | Guest teaching | Guest disagreement | The host pushing back | Why |
|---|---|---|---|---|---|---|
| Technical Founders and the Origin Story of AppDynamics | 3 | 3 | 1 | 3 | Sonal probes the traditional sequence of finding product-market fit before selling, calling it a chicken-and-egg dilemma. Jyoti and Satish clarify how technical founders must shift focus from technology to user adoption early on. | |
| Defining Product-Market Sales Fit and Early Strategy Alignment | 4 | 2 | 1 | 2 | Peter Levine and Jyoti Bansal co-develop the concept of 'Product-Market Sales Fit', arguing product features must inherit GTM attributes. Sonal helps clarify the ARR milestones from zero to ten million. | |
| Category Creation, Enterprise Budgets, and Connecting Engineers to Customers | 4 | 4 | 2 | 4 | Sonal pushes back on whether sales motions apply when inventing a new category like Steve Jobs. Jyoti politely reframes the premise, arguing that even in category creation, an underlying 10x pain point must exist. | |
| Enterprise Go-to-Market Motions and the AppDynamics Sandwich Strategy | 2 | 3 | 0 | 1 | Jyoti explains AppDynamics' sandwich GTM strategy combining bottom-up developer adoption with top-down enterprise sales. The tone is highly collaborative and instructional. | |
| The Strategic Role and Margins of Professional Services | 4 | 5 | 2 | 4 | Sonal directly challenges the use of professional services, citing common SaaS wisdom that services drag down margins. Jyoti and Peter educate the host on how services drive adoption, leading to higher blended margins on renewals. | |
| Product Roadmap Trade-Offs and the Two-Thirds One-Third Rule | 4 | 3 | 1 | 2 | Jyoti lays out the two-thirds core TAM vs one-third expansion rule for engineering investments. Sonal demonstrates subject expertise by linking GTM learning curve experiments to research methodology in developmental psychology. | |
| Inorganic Expansion and Build Versus Buy Strategy for Growth | 3 | 3 | 0 | 1 | Peter introduces M&A strategy for inorganic growth while Jyoti outlines rules for simple, measurable pricing. Sonal aligns with the advice to resist discounting and maintain strong pricing. | |
| Quantifying Customer Business Value and Resisting Price Pressure | 4 | 4 | 1 | 3 | Sonal asks how to concrete quantify 'customer value' beyond vague concepts. Jyoti explains his key discovery question that reveals customer ROI and justifies premium enterprise pricing over competitors. | |
| Structuring Product Management Teams and Essential PM Skillsets | 3 | 3 | 1 | 2 | Sonal probes whether product managers should be engineers or salespeople. Satish outlines the three core traits of top PMs—empathy, business sense, and execution—which Sonal highlights as a rare 'unicorn' combination. | |
| Key Takeaways and Founder Guidance Across Company Milestones | 2 | 2 | 0 | 0 | Jyoti summarizes key milestone advice for founders, emphasizing focusing strictly on the immediate growth phase rather than overthinking future products. The episode concludes on a warm, reflective note. |
Statements from this episode (26)
Cisco acquired AppDynamics for $3.7 billion right before its IPO
“The first voice you'll hear is Jyoti's, followed by Satish's, talking about the initial insight behind AppDynamics, which was acquired by Cisco last year for 3.7 billion dollars. The night before it was set to go public.”
Thaluri: User adoption must drive pre-product-market fit over business strategy
“Without that good UI, UX, and really be it the open source strategy or the closed source strategy, doesn't matter, but user adoption is what should be driving the pre-product market fit.”
Bansal: Startup challenges pivot entirely to sales after product-market fit
“Now the challenges completely change after you have your initial product market fit. They become all about sales and learning sales and scaling sales and, you know, it's almost like the companies go through the journey, right?”
Bansal: Product-market fit is misleading and should be called product-market sales fit
“It's a little bit misleading to just call it product market fit. We should call it product market sales fit.”
Bansal: Freemium business models fail when software products are overly complex
“If your product is too complex, freemium doesn't work.”
Levine: Product features must inherit elements of the target sales motion
“The product, the features of the product need to inherit part of the sales motion itself, right? And that if you're going after a certain Motion or certain customer, the product needs to be reflective of that, and I think we often miss there.”
Bansal: Startups reach product-market sales fit between $1M and $10M ARR
“I would roughly think getting to your zero to the first million ARR You are in the phase one of product market fit. Annual recurring revenue, which is like, you know, do you have a product someone will buy and it's solving some pain. Then you're like, you know…”
Bansal: Ask enterprise customers how they will justify purchases internally
“One of the questions that we always ask, like, you know, my favorite question to ask to any customer was, how would you make the business case to your boss to buy this?”
Bansal: Land-and-expand strategy requires inside sales for lands and field sales for expansions
“Depends on like, you know, if the model is only top down, you probably need only field sales. And you're selling into large enterprises, but if your model is this kind of a land and expand, you want to do the land through inside sales, and you want to do the l…”
Bansal: AppDynamics offered zero professional services for its first four years
“Actually for the first four years, we had zero services.”
Bansal: Spending 10–15% on Services Optimizes Enterprise Software Adoption
“We found the right balance was about 10 to 15%. So like if we, if in our products, if like, you know, people are buying, let's say they're spending a million dollars with us on the software and they spend like, you know, a 100,000 dollars or 10 to 15% on it, o…”
Levine: Professional Services Boost Blended Margins by Unlocking Enterprise Deals
“While services from a unit economic standpoint may be, you know, a little more expensive from a margin standpoint, if it drives very large deals with software margins, you come out way ahead.”
Bansal: Allocate two-thirds of engineering to current TAM, one-third to expanding TAM
“Two-thirds of our engineering investment should go with our existing TAM. And the one-third of our engineering investment, we should keep putting on expanding our TAM always.”
Bansal: New enterprise products have three sales phases based on customer count milestones
“The sales learning covers three phases. One is the, my first 25 customers for the product. 25 to, that's like phase one, which is very, very, almost the founders are selling. Yes, there's the 25 to a hundred customers, and then there's a hundred, after a hundr…”
Bansal: AppDynamics used product managers to sell the first 25 customers of new products
“The first 25 customers for the new products, we actually got the product management team to really sell it the way your founders will sell in the, in a brand new startup, instead of hiring a new sales force for that.”
Thaluri: AppDynamics created a cross-functional SWAT team to sell its fourth product line
“For the fourth one, we literally constituted what we call a SWOT team. It constituted the product management, couple of engineers, the best sales engineers, and one solution architect. We literally went and sold some of the top deals and created the sales enab…”
Bansal: AppDynamics needed 40% revenue from adjacent products for $1B target
“When we did that math and this is again a rough math, like you never know that if we want to get to a billion dollars of revenue from a hundred million in like seven years, let's say, or six years, our plan was, we need to have like at least 40% of our revenue…”
Bansal: Enterprise pricing models must be explainable in half a sentence
“The rule that I've used for pricing is, can your salespeople describe it simply? Like if a customer is going, going to ask you a simple question, so how, how do you price your product? And if you can't describe it in half a sentence, That's a, you have too com…”
Bansal: Enterprise founders should price products higher than they initially think
“I argue to most Founders is that they should price more than you think you should.”
Levine: Novel enterprise pricing models create unnecessary sales friction
“You have to come up with pricing that the customers used to actually paying for. If you start to create something that's totally new, it creates friction in the system.”
Satish Thaluri: Enterprise buyers need budget certainty over variable pricing
“There's a difference between consumer purchase versus enterprise. Enterprises, they need a little bit more certainty. You're getting it from a budget, right? They're already pre-planned. That's one. And they want certainty in the sense that, oh is it, One aler…”
Bansal: PMF requires understanding the customer's exact business case
“Unless you know, understand the business case, you don't really have a product market fit, you know, it's a, because that's what you have to engineer your product around.”
Bansal: AppDynamics always priced higher than its cheaper competitor
“Yes, because we can't, like, if our product is superior, we are, the customer is getting superior value. Either we are lying about it, or we are misguided about it, or whatever, that we believe it is, but it's not. Or we are not articulating the superior value…”
Levine: Buyers cannot appreciate non-obvious software value without a sales team
“Often what gets missed in the whole product adoption cycle is the idea of selling value into the customer where value is not necessarily felt through a self-service product or whatever. You just can't see the value or appreciate the value until an organization…”