The Exchanges

Q a little bit about pricing and packaging? Because that's such an interesting subset of this. So we've so far talked about the go, the product market sales fit, the go to market and the product as a part of that, obviously, because those are the two things you need. How does pricing and packaging come into this? Because that's a really top of mind question for a lot of founders.

A Pricing and packaging is a, is a complex thing. Pricing is probably more complex than packaging in some ways. I look at pricing as more, uh, a function of what is the business value? If someone buys your product, is it worth 50,000 dollars? Is it worth a 100,000 dollars? Is it worth 300,000 dollars? What would, how would people justify? So that's definitely one function. Second is like, you know, 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 complex of a pricing. And yes, there could be like nuances to it, and there could be like details to it, but you have to be able to describe it. Like in AppDynamics, we are monitoring all kind of different systems, right? So the pricing was complicated, but we said, okay, the simple pricing philosophy that our salespeople can tell is we price by how many production systems you have. And that was kind of the rough unit of pricing. And we can measure production systems in different ways, but that's how we price it.

AI assessment note: “the rule that I've used for pricing is, can your salespeople describe it simply?”

Q It's like a good team. You complement each other's skills, and that's the composition of an ideal team, while you have more than an individual contributor. Okay, so any parting takeaways, given your, I'm sure you have a million takeaways, Jyoti, but any big message for our founders and other founders out there trying to do this, whether enterprise or not?

A It was a good discussion on the product market sales kind of fit, but my primary advice I will give to founders listening to this is don't overthink too far ahead in many cases as well. Like, you know, the skills you need to master, zero to one million dollars of revenue, find the product market fit, one to ten million dollars, find the product market sales fit, trade on it, let's say 10 to seventy-five million dollars, Scale the sales organization and go to your go-to market. Then, seventy-five million plus is when this, how do you build our product number two and product number three and product number four starts. You know, anyone listening to this, I don't want them to like, you know, when they are in the zero to one million stage, they're trying to figure out how to do product number two. That's, there's no point spending time on that. So the, the skills that you have to learn in the, the, you know, the organizationally, as an organization and also as a founder, they change as you go. And my advice to People focus on the thing that you need to learn the most to get to the next milestone, and excel at it, then worry about the next one when you get there.

AI assessment note: “my primary advice I will give to founders listening to this is don't overthink too far ahead”

Q a little bit about pricing and packaging? Because that's such an interesting subset of this. So we've so far talked about the go, the product market sales fit, the go to market and the product as a part of that, obviously, because those are the two things you need. How does pricing and packaging come into this? Because that's a really top of mind question for a lot of founders.

A Pricing and packaging is a, is a complex thing. Pricing is probably more complex than packaging in some ways. I look at pricing as more, uh, a function of what is the business value? If someone buys your product, is it worth 50,000 dollars? Is it worth a 100,000 dollars? Is it worth 300,000 dollars? What would, how would people justify? So that's definitely one function. Second is like, you know, 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 complex of a pricing. And yes, there could be like nuances to it, and there could be like details to it, but you have to be able to describe it. Like in AppDynamics, we are monitoring all kind of different systems, right? So the pricing was complicated, but we said, okay, the simple pricing philosophy that our salespeople can tell is we price by how many production systems you have. And that was kind of the rough unit of pricing. And we can measure production systems in different ways, but that's how we price it.

AI assessment note: “the rule that I've used for pricing is, can your salespeople describe it simply?”

Q But how do you as a founder know that you're not leaving value on the table when you're giving that certainty or like surety that this is what you're going to get?

A If you put in like the, a good ROI process in your, as part of your sales process, that's how you guarantee you're not leaving money on the table. We had a very structured sales process and in the sales process, we would look at like, you know, what is your current state of doing this? How much is it costing you roughly? Let's say what's, what would be a new state with AppDynamics and what would that cost you and how much money are you going to save? And then price is a little bit of a function of, you know, how much money are you going to save and what's your ROI? And that's, you know, if, If we are charging more than what's gonna save them, they're not gonna pay for it anyways, right? Most companies, I see the mistake of like, you know, especially you're selling into large enterprise, and you're asking for, you know, half a million dollars to someone, you don't back it up by a business case, people are not going to pay you.

AI assessment note: “If you put in like the, a good ROI process in your, as part of your sales process”

Q So tell me the takeaway on services, because I've always heard and disillusioned me of this is that this is not correct, that services are the things that reduce your margin. So you don't want to have too many services or what's, how do you balance that one?

A It reduces the margin is from the perspective of you as a vendor. But think from the perspective of a customer, like if they, if they spend a million dollars on your product and they're not getting the value of a million dollars because they didn't have enough, the right pupil in place to implement your product. That's not good for them, and eventually it's not good for you, because you're building a likely recurring revenue business in some kind, right? When we started, we were like, we're not gonna sell services, not from a margin perspective, because we wanted our product to be easy enough that no one needs any services. And that was true for, you know, for, for a long period, for the, actually for the first four years, we had zero services. And then we started getting into larger and larger enterprises, and larger and larger deals, where people were spending millions of dollars with us.

AI assessment note: “It reduces the margin is from the perspective of you as a vendor.”

Q But how do you as a founder know that you're not leaving value on the table when you're giving that certainty or like surety that this is what you're going to get?

A If you put in like the, a good ROI process in your, as part of your sales process, that's how you guarantee you're not leaving money on the table. We had a very structured sales process and in the sales process, we would look at like, you know, what is your current state of doing this? How much is it costing you roughly? Let's say what's, what would be a new state with AppDynamics and what would that cost you and how much money are you going to save? And then price is a little bit of a function of, you know, how much money are you going to save and what's your ROI? And that's, you know, if, If we are charging more than what's gonna save them, they're not gonna pay for it anyways, right? Most companies, I see the mistake of like, you know, especially you're selling into large enterprise, and you're asking for, you know, half a million dollars to someone, you don't back it up by a business case, people are not going to pay you.

AI assessment note: “a good ROI process in your, as part of your sales process, that's how”

Q It's a very philosophical question. What is product market fit?

A In such a vague question, my simple definition is if you can, If, if you understand the business value of your product, that's when, you know, and so, you know, the question that I used to ask in the product market fit phase was, how would you justify the business case to your boss? So like, I'm talking to a, say a director of DevOps. I'll say, okay, well, how would you make the business case to your boss if you have to buy AppDynamics? And he said, we had one outage a month. Every time we have an outage, you put six engineers there, and this is how much it would cost us. And because our users have bad experience, we lose this revenue. This is how much cost us. And once I start hearing it, I know like this is what I would, I would, I would like to teach our salesforce how to make the business case, because this is how the customers are articulating. And 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.

AI assessment note: “my simple definition is if you can, If, if you understand the business value”

Q So tell me the takeaway on services, because I've always heard and disillusioned me of this is that this is not correct, that services are the things that reduce your margin. So you don't want to have too many services or what's, how do you balance that one?

A It reduces the margin is from the perspective of you as a vendor. But think from the perspective of a customer, like if they, if they spend a million dollars on your product and they're not getting the value of a million dollars because they didn't have enough, the right pupil in place to implement your product. That's not good for them, and eventually it's not good for you, because you're building a likely recurring revenue business in some kind, right? When we started, we were like, we're not gonna sell services, not from a margin perspective, because we wanted our product to be easy enough that no one needs any services. And that was true for, you know, for, for a long period, for the, actually for the first four years, we had zero services. And then we started getting into larger and larger enterprises, and larger and larger deals, where people were spending millions of dollars with us.

AI assessment note: “It reduces the margin is from the perspective of you as a vendor.”

Q It's a very philosophical question. What is product market fit?

A In such a vague question, my simple definition is if you can, If, if you understand the business value of your product, that's when, you know, and so, you know, the question that I used to ask in the product market fit phase was, how would you justify the business case to your boss? So like, I'm talking to a, say a director of DevOps. I'll say, okay, well, how would you make the business case to your boss if you have to buy AppDynamics? And he said, we had one outage a month. Every time we have an outage, you put six engineers there, and this is how much it would cost us. And because our users have bad experience, we lose this revenue. This is how much cost us. And once I start hearing it, I know like this is what I would, I would, I would like to teach our salesforce how to make the business case, because this is how the customers are articulating. And 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.

AI assessment note: “my simple definition is if you understand the business value of your product”

Q Did you guys have different product manager profiles though then for the one third of the organization that was doing the more evangelical startup within a startup next product line types versus the ones that were doing the core? Cause I would imagine those are two different sensibilities and they might or may or may not transfer.

A Uh, yes, we had, I would say the profile is a bit different. Uh, the product managers, once you have a V-one product kind of going from there, the profile could be a bit different. But you, at that point, you need multiple product managers. So you still want the, the product managers who could, you know, go and help create something disruptively unique feature set, etc. But you also want, like, you know, product managers who are very good at understanding the You know, how is it working out in the market and, you know, what's the, you know, what's the adoption curve and what's the, you know, is the pricing working? So it's, you really, you know, the product management skill set also has different things to it, right?

AI assessment note: “Uh, yes, we had, I would say the profile is a bit different.”