From Developer Adoption to Enterprise Dollars
Developers are increasingly influential when it comes to enterprise technology adoption. So much so that Redmonk analyst Steve O’Grady has called them “the new kingmakers”. However, while they might adopt products they love, developers still don’t control the enterprise purse strings. So how do you create a big developer-focused business in the enterprise? Based on his experience with more than two dozen developer-focused startups, including Heroku and Twilio, Geva Perry explores the phases & growth of these companies and explains how to graduate from developer adoption to enterprise dollars.
- The Problem
- Historical Barriers
- Barrier Timeline
- The Buying Process
- Developer as a Buyer
- Saleforce, New Relic, Atlassian
- The New Model
- Early Phase
- Transition & Late Phase
- Why Not Transition Sooner
- When to Transition
- Off the Record
Thank you everybody for coming. My name is Geva Perry. I'll give a little more of an introduction about myself in just a second. You can follow me on Twitter at @GevaPerry. You can also check out my blog ThinkingOutCloud.com. I haven't updated it in a while, but there's actually a lot of great content in there about exactly the topic that I'm going to talk about today.
I have been dealing for several years now, with this question: What's the most effective model for generating sales,revenues and growing a startup that's focusedon products for developers?
Now, this is obviously a big questionand a big challengeand I'm not going to addressevery possible angle of it today.What I want to do today is sort ofgive an overview of a lot of the elementsthat are involved in it and some insights that I've had over the past few years into whatI think is getting closer and closerto the optimized model. I want to show youthe progression of thatand what that model looks like.
As Tom just mentioned,I've worked with quite a few companies.You see a few of the logos of the companiesI've been involved with.Some I'm an advisor to, some I'm on the board.Actually, the three top ones: Sauce Labs, BlazeMeter, and Upstream Commerce -I'm on the board. You can see a whole bunch of other companiesthat I've either been or am an advisor to,or have done some work with helping themwith a business model, the financial model,the sales model, the go-to-market plan.
As Tom mentioned, Heroku is one of them.That's how I know James. With the Heroku guys, I worked early on in 2009when I think it was still pretty muchthe 3 founders. I've done the samewith some of the other companies.I'm sure you recognize some of those names here - Twilio and New Relic and some others. That's sort of whatI've been doing for the last five years.
Before that, I actually worked at a software companycalled GigaSpaces.My last role there was Chief Marketing Officer. I was there for five years,I was part of a team that kind of restartedthe company in 2004. I started actuallydoing sales there. It was a product that is used by developers.
But this was 2004, there was still no notion of online as-a-service and all that great stuff.It was basically your classicenterprise sales model, meaning it's top-down,high-touch with enterprise sales guys.
It was $300K deals, $500K deals,million dollar deals that took 9 to 12 months to closeand involved a lot of work on our partin customizing the product, in meetings and in wining and dining customers.If you've ever done that or been involved with that,you know what a nightmare that is.
Actually, while I was still at GigaSpaces,around 2006, 2007, 2008the whole Cloud computing thing started emerging,and as-a-service, infrastructure-as-a-service, platform-as-a-service,software-as-a-service started emerging. It was becoming evident, more and more,even though there were already companiesthat were doing pretty well since 2000,like Salesforce.com. It was still rare, especially for products for developers,and for selling to the enterprise. All that was still just emerging.
I got very disillusioned withthe enterprise sales model and all that entails,and I got enamored with this potentialfor a new model.
I started thinking about it a lot,and started writing my blog about that topic, I thought, "what does it look like? What are the challenges? What do we need to do?" That's whysome people started paying attention to me. Actually one of them was Scott Raney who wasHeroku's investors through Redpoint. He called me up and he said,"I've got a company, they've gota lot of developer traction,but how do we turn this into a business?" He wasn't the only one,there were others,and that's how I started workingwith all these different companiesand really starting to think through this.
I'm telling you my story in a little more detailthan I usually do because it's very relevant. The evolution that I went through andmy own thinking through this is very relevantto what's going on in the industry now.
There is an inherent,almostcontradiction betweengetting developer adoption and focusing on doing sales.At least that's how it was perceivedand frankly there still are a lot of things going onthat make it very difficult to be successfulat both at the same time.And I'll touch on some of these reasons,but I just want to put that out thereand address this issuethroughout the presentation.
I'm going to do a littlewalk through history here just to give us all contextof what's going on. How did we get here?
Historically, even products where developers were the users, weren't brought into the enterprisevia developers.Developers were always somewhat influencersin the whole purchasing process,but if you think about databases and application servers in the late '90's (kind of the Java stuff ) the developers weren't really the adopters of these products.They could just say, "We need a database"and everything was pretty much dictated to themtop-down in the enterprise.
Why was that?They had no ability to influence the processmore than just offer their opinionwhen there already was a sales processwith the vendor because they didn't haveaccessto the software itself.They didn't have access to hardware,and I'm not talking about a hardware productthat was being sold to the company they worked for. They didn't have accessto hardware to try the softwareeven if they could get the software.
Even later, when there were already downloads, the developers had to ask IT for serversto try something out and wait 3 months.It's still very common in the enterprise. That was a problem. They didn't really have a chanceto test, touch it, try it out,and certainly not start working with it.
They didn't know what the cost and pricing of it was. Notice I've put a separate bullet for budgetbecause I'm not even talking about themnot having the budget to buy it.They didn't even know how much it costbecause nobody put pricing on the Web. It was the sales guys who wanted to engage and wanted to negotiate it. There was this huge list price,if there was a price publicly made,and then they would get 80% discount on the last day of the quarterwhen the sales guys engaged with themand all that good stuff that Oracle still does today.
For the developers, even if they could get their handson the software, products were very difficult to setup,configure, integrate with other things,so they always had to go to somebody elsein the organization. It had to bea concerted top-down decision and top-down effortin the company to get this stuff done. The developers were very minor influencersin the whole process. I'm not even talking about issues of politics and getting budgets and who controls what.
If you look at the little timeline here, just to put it in context,pretty soon a lot of these barriersstarted being removed.We look at the 1990s. Of course, there was software being sold for developersbefore the 1990s,but it wasn't really a mainstream product. There weren't that many developers around,not many companies were doingso many software projects as they are today. It was a very niche, unimportant thing, and most companieswere creating their own software.Sure there were some database productsand some other things coming out,but that was the exception.
In the '90s software products for developersstarted becoming mainstream. But because of all those reasonsthat I just talked about, it was a high friction model to getthat software into the enterprise. It involved salespeople and meetings,and all that great stuff, and getting serversand doing POC's. A lot of friction. It was the classic enterprise software modelwhether it was software for developers,or for CRM or whatever, it was all the same.
Then things started to change.One of the first things that happened when the Web came out, something very simple: Companies started putting outtheir software for download.
One of the first companiesthat did this in '97-'98 is WebLogic.I don't know how many of you guysare familiar with it.I see a lot of young faces.But, I know those guys really welland they were really some of the pioneersin starting to do this direct connectionto the developers via the Web.They put their software for downloadwhich was a new crazy thing because,"aren't they going to pay for it?"All these questions came from their VCswhich included Kleiner Perkins and othersat the peak in those years.But they were developers and they decided "We're going for it this way."
They became a very, very popular productamong developers and started succeedingin the model and they were followed by many others.They did it in '98.I'm saying 2000's here is when it becamemore and more mainstream. Of course,a little later in the early to mid 2000's open-source softwarereally became mainstream.So you had enterprises now using things likeJBoss, Red Hat, Linux in all flavors,MySQL, et cetera, et cetera, et cetera.That really was a game changerbecause not only was it softwarethat was available for download on the Web,it was free basically, at least in theory.
We all know it's not really free down the lineespecially not for enterprises. But as far as the developers were concerned,it was free. So they didn't have to ask for budgets,they didn't have to ask for permission for anything. They just went ahead and did that. That progression of sort of removingfrictionfrom the process continued.
The next phase, I'm going to call that era Web 2.0 because what was really changingabout that is the business models. All these ideas of freemiums,and free trials and pay-as-you-go payment models that Amazon Web Services startedreally making mainstream at that pointright around 2006. Also, there were the marketing models, social marketing, marketing automation.
The enablement of all this stuff made itreally feasible to market and sell productsthat were traditionally B2B enterprise products via the Web.
Eventually, the Cloud era which was infrastructure-as-a-service. That by the way, was one of the last pieces that needed to happen.Remember I talked about access to hardware that the developers didn't have it.Now there was access to hardware,cheap, on-demand, scalable,whenever you need it, all that great stuff.Not to mention platform-as-a-service,and software-as-a-servicefor a lot of the products and all the API.I was just talking to the Keen.io guys here. We mentioned Twilio,and a lot of the other API revolution that happened. Again, a lot of enablement for developersto do stuff they couldn't do before.
Now, if you think about the buying process,and I want to talk about this for a secondin this context that I just described,this sort of historical context.I'll walk you through the steps real quickjust to make sure we're all on the same page.So status quo, a company doesn't haveany reason to buy, this is the current situation.Suddenly something happens where there'sa priority shift either some kind ofa change in the environment happens,new technology comes out. Whatever it may be. Or a new need arises in the companyfor multiple reasons,and now they have to shift their priorities,and they're getting closer to understandingthey need to bring in a product.
If you think about this priority shift,by the way, it can come from things likeeither a completely new need — mobile apps.Now everybody needs to build mobile apps.They didn't need to do that 3, 4, 5, 6 years ago. That's a new need.Now they need to buy stuffthat enables them to do that, the emergence of Cloudand software-as-a-service.
Suddenly there's a new value propositionout there which is "Yes, CRM like you knew it,but now it's in the Cloud with all of these advantages".
You don't have to install, upgrade, you can add users instantly.You can do all these great things.You don't have to worry about the maintenance. Suddenly it's a new value proposition and there's a new need to buy.
After that they research their options. What do we need exactly? What are our requirements? What's out there? They realize the options and weigh them.They validate whatever kind of final lists,short lists they get to that's interesting and make a selection, and eventually go through the negotiation and purchasing process.
It used to be historically, that the first partsof that buying process were relativelylow or no-touch processes. They would happen by marketing materialseven before the Web and/or in a conference. But as time progressed and these barriersstarted decreasing, more and more of this processbecame low-touch as opposed to high-touch.High-touch meaning sales guyshad to get involved, basically.
Companies were in the early days,and still for a lot of companies out there,selling the enterprise sales model. Sales guys get involved even at the pointwhere they're trying to shift the prioritiesof their customers and are very, very heavilyin the account all the time,working the account for whatever angle they can. As time passed, when we removed all these barriers, that shifted.
More and more is done now by marketing online,by the product itself,by a lot of the technology that's out there. At some point we got the abilityto even sell things that were, again, B2B enterprise. I'm not talking,of course, about consumer stuff, and certainly developer products that youcould complete the entire buying process online.So great. This became a wonderful thing.There are a lot of other advantages.
Early vendors who were doing this becamereally excited about developers as their customer,because until then,developers were influencers, not the buyer.
One thing that's great about selling to developersis you're getting in very, very early in the lifecycle.When the developers start developing and looking for the tools to work onjust building the application or even the prototype,you're at a point whereif you sell to them, you're getting intothe project really early on.
Sure, maybe there's not cash money in it yet,but you are sort of,"locking them into your product" because they're putting it in the app,it's being used, and it's essentially a lock-in. I found a very fancy way to say it here: De facto decision on purchasing.So, they're getting locked-in to your stuff. From a vendor perspectivethat's an excellent thing. And the other thing, of course, is that this whole model that I describedthat's low-touch and bottom-up throughout the whole process is an extremely efficient low-cost sales model.
As this realization cameand the barriers were removed,there were a lot of huge advantagesto this business model.The pendulum swung from what used to bethe attitude in Silicon Valley.If you talk to a VC, some of them even today,but some others 3 - 10 years ago for sure would have told you"there's no money in selling developer tools." And that became a dirty word in the Valley. "Developer tools," you can't make money of off that.
Suddenly all these barriers are removedand a bunch of companies emerged doing really well.I put here 2 stories of 2 companiesthat came out around the 2011 timeframe.One is New Relic who did this whole PR campaign. You see they're calling it "Death of a Salesman."Nice little play on words there withthe Arthur Miller play. And then there's Atlassian that passed the 100 million dollar markwith zero sales people as well.That was wonderful and now everybodywas excited about this and a lot of folks out therewere trying to implement this zero salespersons, zero touch model.Of course, there were other companiesout there that were becoming hotter.Heroku, of course, is one and a bunch of others.
But, after a quick sort of honeymoonwith this thing, for many people there was sort ofa disillusionment with this approach.
It turns out you do hit a wallwhen selling to developers and not through developers which isthey still had limited budgets.So at the end of the day they still controlledlimited budget and they still had limited controlabout the big decisions in the company.
Sure, you've got developed individualsor little groups, or even departments,buying stuff for a point solution here and a project there. But you couldn't really do thesebig million dollar,or even 200 thousand dollar enterprise dealsto get this really used in the coremission-critical stuff that the enterprise was doing.The developers still did not havethat kind of influence.I mean sure there were some flukes here and there,but on the whole it was becoming very, very difficultto do these bigger deals through this model.
I wanted to show you something,a little comparison that I did. The reason I did it is becauseas I was researching a little bitfor this presentation — this is stuff I think about all the time — but, I wanted to do something new. I saw an interview with one of theAtlassian founders who was sort of badmouthingpeople like Salesforce.com. I realize New Relic and Atlassianare developer products and Salesforce.com isn't.Well Heroku is, of course, but most of their revenue is where it comes from, at least in these years that I'm going to talk about,that's for sure. But, I think the principle still holdsfor what I'm going to say.
He was saying, "Salesforce was never really a kind of SaaS company"or rather he was saying, "SaaS isn't a business model, it's a delivery model"which is correct technically. But he was basically saying they didn't changetheir business model, that they still hadthe same enterprise sales business model.I disagree.
First of all,I was one of the early users of Salesforceso I know how it operated. I also talk to and know a lot of peoplewho work at Salesforce from the early days and today, about their sales modeland marketing model and what they do.It is true that they did have sales peoplefrom day one. So that is true.
It's not true that they used the old modelbecause even though SaaS is just a delivery model,it almost imposes some new thingsin the business model to happen.
Salesforce from day one had sales people,but a lot of people were buying online, and buying on their own, swiping credit cards. That was happening from very, very early onand especially when they were taking off.
Now Atlassian, I want to say a word about them.If you notice down there, I wrote in 2011,the year they surpassedthe 100 million dollar revenue mark that they had 400 employees and they saythey had zero sales people. They also say that everybody in the company is a salesperson (except nobody gets commission).So they passed this, they had 400 employees and did 100 million in 2011.That was year 10 since their founding. That's not that great.That is a lot of years wastedand not great growth.
By the way, actually there's on the Web a graph that shows the revenuesthroughout the years.They started putting these numbers outbecause they're getting ready for an IPOso they can't be secret about it anyway.If you look, a year before thatthey were at 60 million so that particular yearthey had great growth. But, the years leading up to that, not so great. Even that is not that amazing.And it's a lot of employees, too.
If you look at New Relic, for example — and here's a part I just want to say: I did say in the first slide and I did put their logo that I worked with them,but it was several years ago.I know these numbers here from rumor and innuendoin the Valley. Nobody in the company told me.It's not an official number.You can believe it or not.But that they did last year,which was year 5 since they were founded,40 million dollars in I'm not sure if it's recognizedrevenues exactly or bookings. We won't get into those technicalities. And this year they're going to dobetween 80 and 100.At first I heard 80, then I heard 100, so it's somewhere in there.
They have 270 employees and out of those270 employees, 70 are in the sales organization. Not everybody is a bag carrying sales guyas they say. It's the whole sales organizationwhich today speaks to what I am going to saybecause it's the modern sales organizationwith kind of a triaged model of how they handle all that. But I'll get to that.So if you look at that, they're not at year 10 yet,but you could see the trajectory there.It's quite remarkable. Obviouslythe biggest difference is that the New Relic guysdo have a fairly large sales organizationat this point so they're much more efficienton revenue per employee and a lot of other metrics.
It's interesting because in 2010they were talking about no sales guy and 10,000 customers.Well that's changed and they hit that wall.Some of them might admit it to you. I'm not sure.You can see Salesforce, by the way,which is even higher numbers.
I understand that you can't always compare. Not all of these companies are apples to apples.There are many different reasons.
Salesforce was targeting a very large existing marketwhich was CRM with very poor, not poor in the sense of no money,but sucky incumbent vendorswhich was Siebel Systems primarily. They got to do it very quickly and Marc Benioff was alreadya senior executive from Oracleso he came with a lot of credibility and all that.So sure, there are a lot of things therethat you can't compare,but you still cannot attribute all of that extra revenue to it. And since they were working with sales guysearly on, I think that explains a lot of their growth. They also burnt a lot of money,a lot more money than the other guys.By the way, that year where they didthe 748 million they had 1,400 employees.
I think that in the industry, as I said, the pendulum swung.At first it was on the complete top-down,high-touch sales model, then it swung. I was among the people, you could find it in my blog, we're extremists I would call it, who then being disillusionedfrom the high-touch model, from the top-down modeland being in love with the zero-touchor low-touch, bottom-up model that completely said, "that is dead,the enterprise sale is dead,death of a salesman" and all that great stuff. "It's a new worldand who needs those sales guys anyway."Then it kind of swung back into the middleand that's sort of where I am,and I think a lot of people in the industry are.
We're still in very uncharted watersas to what that means, what that model looks like,how it works, and I think it's alsoa little more complicated than people think.
It's not, as some people have beencalling it, a hybrid model.I don't like that term because from my experiencewhat I've seen that works bestis not a hybrid model. It's a little misleading.It might become eventually some kind of a hybrid,but still not reallybecause there are two phases. From my experience, again,I want to be careful that I'm not doingthat apples to oranges thing. For different companies I have a bunch of criteriaI put together as to what might change that,and some of it is obvious.
The first two years,I put down as one phase. That is a phase where you're doing the Steve Blank customer development. So the high-touchthere is done by the founders and the management, talking to peopleto understand what they're doing with the product,what they need, use cases,figuring all of that out. You could call that high-touch,but that's not what people mean when they say high-touch sales. That's not the idea. That's more self-education and customer development.
In terms of the actual sales - that's doneas low-touch, no-touch, online sales.I'll describe that model in a little more detailin just a second.There's some kind of a transition periodwhich I'll explain, then you're moving intowhat I call "triage sales" which involve alsohigh-touch, hiring sales guys,building a sales organization and all of that.
I'm counting the two years from whatI'm calling GA, and just to make surewe're all talking about the same thing, GA — general ability, that's roughly when you start chargingand announcing and all of that.
I was just talking to somebody who was telling me, "Yeah, we started charging,but we really didn't tell anybody. We just kind of quietly put it on the website." But six months after they're charging, they're planning a big announcement.That's when I'm counting the two years, from that point.It sounds like a lot and it is,but I'll explain what it means, what happens.
I'm going to say something else here.There are other ways to approach this. As I said in the beginning my objectiveand the thing I'm thinking about iswhat is the best, most effective model. But it has one assumption in itwhich is - you do fundraise.You do need funding to make this model work.You can tweak it to work with less funding,but then you'll get less growth. For example, Atlassian for eight years didn't raise money.They bootstrapped for eight years.Good for them. They have a shitload of equity, excuse my French,and that's wonderful. But, the growth and revenue was slower.
Now what happens in the early phase? So that first phase, the marketing, that inbound marketing base,it's a COSEM, social marketing,a lot of that stuff.You could do some PR and all that,but basically you're trying to bring peopleto the website, have them read what you do. Sign up, start using, some kind of a free trial,freemium model, eventually swipe a credit card,self-service themselvesthroughout the entire process, zero-touch model.
One of the other things you need to doin this phase is emphasize removing friction.Throughout this whole process there is still friction.You see this a lot. There are companies where you go into their product and first of all, the documentation sucks. Then the product still requires some kind of installationand integration. They don't have multiple user accounts.They don't have the right security features. They don't have this and that,so there's still a lot of interaction,problems, support calls,and even just problems getting up and running.This is an important point.You'll understand in a second why.
There's also the on-boarding. You want to do things like marketing, automation,and measuring everything in metrics,and then automating with it.This is exactly that two-year or so,it could be less, a little more,that great period to get that done.
In terms of the transition and late phases at some point you realize,and the next slide will say how you realize that, it's time to transition to the next phase.That's when you start buildingthe sales organization, the sales processeswhich includes high-touch, inside sales, people on the phone basically,and field sales guys going out to meetings,wining and dining customers into your organization.You do it in a fairly gradual manner. That's that transition period that I'm talking about. It's mostly, you startwith some inside sales people.You can even start before that with one person on the phone doingthe hot deals. I'll get to them in a second.
Then the other thing that's very, very, criticalis that triage process.Now what do I mean by triage?This is something that companies like Salesforcedid pretty early on and a lot of companies do todaywhich is you basically find a way to identifywhat kind of customeror lead you're dealing with here.Let's say there are three tiers.Some companies have more than three tiers, or three options, in this triage.Some companies have two.I don't think anybody has less than two,otherwise, it's not a triage. The three basic models are zero-touch,low-touch, and high-touch.Okay, what does that mean?
Zero-touch, the person goes in,you expect them to sign up on the Web,self-serve, swipe a credit card and get going.Low-touch could be, you have to close the deal in 2 phone calls.If you can't close it in 2 phone callsyou have to decide does it go down to zero-touchand then just say in a nice way, "good luck."Or you put a high-touch sales guy on it? Then, of course, the high-touch is where a sales guy calls, it's his account, he's on it,he's trying to make the deal happen.
How do they triage?By what criteria?It's based on, sometimes as simple as,an email from a domain nameof a big company. That's enough to put somebodyin a high-touch bucket, even though they don'talways do it automatically. Also, more and more companies are startingto measure user behavior — what they're doing, their log-in,if they're adding additional users like a multi-user account,if they're doing integration, activation. All the phases I'm sure you all havein your product. Something that's an indicatorof seriousness, activity, real use,or whatever it may be.And then they triage them.They do automatic nurturing to themthat tries to approach these folks.That's kind of what happens in these transitions.
The late phase is building that organization. That's something that,for example, I mentioned New Relic before, that's whatthey've been doing in the last two years.In 2011 they had they claim 1 sales guy.Now they have a 70-person sales organization.They've exactly been going through that.
The obvious next question is why not transition sooner?If it's such a great thing, why not do it sooner?From my experiencethere's several problems with it.
Sales guys, once you start hiring themand they've got quotas and they're workingreally hard to meet their quotas,they are going to push. These are not wallflowers.
Almost by definition these are strong personalities,type A's, and they want to get paid. They're coin-operated. They're going to work hardto make sure they get theirs.They're going to put a lot of pressureon the organization to do what they needand not necessarily what's right for the company.
The other thing is sales guys are not going to work it out with the customerand do customer development which is that thing Steve Blank talks about.Figuring out what they need,what the use case is, all that great stuff.They need a story. What's my story,what's my pitch going in there? Understanding does this guy fit my pitch,doesn't fit my pitch, it fits my pitch. I give my pitch, I close my deal, I walk out.They know how to work the organization.They know how to work people, help people.
I'm not saying sales guys are bad.Maybe it's a little too latein the presentation to say that,but it's not my intention. I've met really greatenterprise sales guys. These are,if you're familiar with, solution sellers. Solution selling is about uncoveringthe customer's needs and then helping themfigure out together and all that. The reallygood sales guys, that's what they do.They're very smart about it. They need much more ofa template into sales and at that phasethe company usually still isn't just ready.It isn't ready for that.
There are exceptions to the rule, like I said. Sometimes it's a little clearer.For example, one of the easy thingsfor Salesforce was that they did what's called, and some of you may havecompanies who are like that.They didn't really invent a new category,a new technology, or a new need,that's what's called, Steve Blankand others before him called,re-segmenting an existing category.
So there was CRM, installed on premises.Everybody knew what it does, what it's for.They already knew they need it.They already had it.He was basically saying, "This is CRM but that works better.You don't have to install it.You don't have to upgrade it.You don't have to maintain it. Anybody can connect from anywhere with a browserand that's wonderful and that's it.So, it's just a better CRM."
That's a fairly easy value propositionto explain to a bunch of sales guys.
A lot of companies have it much more complex.Heroku was a little more difficult.Heroku's first meeting, early day meeting, we were asking, "What is this thing?What do you call it?"
And I still don't think they've figured it out, have they?Platform-as-a-serviceis what most people would say it is now.I don't think it even says that on the website. That wasn't a given. That was a term I think that was already out there in 2009, kind of obscure and used byindustry insiders.
You could seehow that's a very difficult thing to go tellsales guys. He says, "What am I selling, just tell me what is this thing?"You couldn't even answer that, and that's truefor a lot of companies.Not to mention that evenif you do a little deeper things, you know what category it is,but it may be an unfamiliar categoryto a lot of people. What exactly is the value proposition? Who in their organization is the point of contact? Who needs it the most? Where's the biggest pain? What are the best use cases?
All this stuff is still undiscovered or being explored or in transitionand being figured out. It's not something you could put sales guys on.
Then they start taking you in dangerous places because they take youwhere their biggest deal is.So they hunt for elephants, that's what they call it.They hunt for elephants.They get the biggest commission from that.They perceive it as the same work as a small deal.In the old model it was true by the way.In the old model doing a $20K deal and a $200K dealwas pretty much the same effort. So if you're going to do that,you might as well go after the $200K guys. That's what they do.
They take your company into a placewhich is not necessarily the right place for it to go. They influence marketingand they put out therewho to target and how to target. And they certainly influence the product a lot.
The other thing that happens, they come with a big fat deal suddenly.They've got a $400K dealthat is very, very tempting to everybodyto close that deal because let's say we're a company that's doing, I don't know, a $30K MRR that month. This suddenly takes the companyto a whole new level so everybody is saying "Wow!"But it comes with some strings attached.You never do a deal like thatwithout having to do some customization,roadmap promises, putting a couple of people on it.All that is commitment of resourcesand it's taking the product not necessarilyin the right direction for the company.I see that all the time.That is something that is very, very damagingto a lot of startups.
The last thing that's problematic abouthiring sales guys too soon isthey remove the focus on removing frictionfrom that whole process, and from the product. If you put a person on it,and a very motivated salesperson, they will make up for a lot of deficienciesin the marketing process,in the customer acquisition process,in the on-boarding process, in the upgrading and up-selling process, all of that.The problem is, it's a much less scalableand efficient model, as I said in the beginning.
We're kind of losing all of that great stuffthat we had, we hadthe best of both worlds, with this new model. You're losing because if you don't feel the heat of wanting everyone to be able to sign up,or add a user, or do an integration, and you depend on a sales guythat's going to run around the companyand get the answers for themso we could close the deal.
If we have that,that takes this sort of monkey off our back of needing to make it work good, and it reduces our motivation. We're not going to do itand we're going to be less good at it.
This isthe flip side of companies thatstart with high-touch sales guys early on. You can see in their products,including Salesforce, that they're not as good at that stuffas companies who really started witha zero-touch model early onand stuck with it for a while.
When to make that transition.I'm going to jump back just to that little chart. You see this little chart.Let me explain it a little bit.Obviously, the horizontal line is time,as I said relative to what I call GA, and that one is revenues.This is your classic hockey stickand, as I said, that first period thereuntil you hit that first transition lineis about two years in many companies that I've seenthat sell developer-focused products. Then you start jumping from there. That kind oftransition period could take several months to a year.There are other indicators.
I said don't jump on it too soon,you'll get burnt in other ways.Don't miss the boat, or you won't grow as fast.
There are some things that giveyou some indication. From my experience,and like Tom said in the beginning,and I said, its been dozens of companies, I think at least two dozen who are developer-focused companiesin the last 3-4 years. From my experience it happens, I said 2 years, but really it has more to dowith the MRR, with that rate of revenue. It's a fairly big range I'm going to give,I'd say in my experienceit's more towards the end of the range,but there are a lot of exceptions. It's $50K - 100K in monthly revenues. That's when things start changing for the company.I think it's closer to 100which is kind of 1.2 million in revenue. So a little over a million dollars in revenuetrailing 12 months is when you start feelingthat something is happening in this company. Things are changing.
There are more qualitative thingsthat give you a much better indication. One is you as founders,as managers, as guys working in the company feel that you understand your positioning.We know what our positioning is. I see and I talk to a lot of companies. The first time when I walk inI ask, "what's your positioning" and they think they know. As we engage in our conversationand what I mean by positioning,they realize that they know less and less.
Positioning means you know exactlywho you're selling to.
WhenI say who you're selling to, it's not developers. You can't focus on selling to developers.It's what kind of companies and what use cases and companies? What are they doing? It could be what the project is,type of project. What's the real need there? What's driving this demand for this thing? It's who in the organization is the onewith the strongest needand the one we need to get toand make all our messages appeal to? It's, like I said, the use caseand it could be more technical things.
Like if this is just a productfor Ruby developers, great. That makes usmore focused, that takes us a long way,but it's not enough.It still doesn't tell us who are we selling to exactly,what are we selling,and how are we different from everything else. Those are the key things, what the value prop is.
Those are the key things about positioning.It takes time to figure that outand a lot of people realize when they figure, "Ah! I know what we are now." And you realize whenyou don't know what we are now.
The other thing is that we startgetting a more consistent pricing, understandingof what the right pricing is for our productand what the usage metrics areif it's a SaaS or API or something like that.We start seeing that there are patternsbecause I can tell you in those first two yearsthis is a very steep learning curveand it can change rapidly. In the beginning you're influenced. You're so small that you might get a lot of influencefrom very small events that suddenlydo a burst of revenue because of some oddity,or something unusual that happened. It really doesn't teach you much aboutwhat is the repetitive, true calling of the company; what is the repetitive sales modeland the true calling of the company.
We understand how to triage because we're starting to see a pattern that emerges what a big customer looks like, what medium-touch customers look like, when we can close it on the phone, when can't we avoid going thereand doing the meetingsor doing other high-touch stuff for them.It doesn't actually have to mean physically flying.
Higher-touch customers or the bigger deals -- they're not going to want to do yourclick-through agreement on the website. They're not going to swipe a credit card.They're going to want a PO.They're going to want terms, discounts.They're going to want indemnification.They're going to want all sorts of legal terms.They might want this or thatand sometimes they also might wantsome promise as to the product roadmap,or even customization.
There's no need to be extremist about it, just make sure that sales guysaren't over-influencing it incorrectly. We need to understand what those guys look likeso when we start triaging we knowwhat we're triaging based on.
I just want to add one more thing.There's another thing that happens, that happens naturally in those two years. Actually 2 points.One is, it's sometimes hard to know when it's right,but there's also something very naturalthat happens at some point that makes it very clear. This is time.Like all things in life,or almost all things in life,it's not exactly black and white. When I say two years, I'm just sayingthat's my experience from what I've seenin a lot of companies, is when that starts happening.
One of the biggest indicators is, and this is the beauty of this model of startingwith this low-touch model, your customers will tell you when you're ready.
They will self-select and raise their handsand give you a call even thoughno sales guy is calling themand they'll say "Hey, I've been using your stuff for a while.I've been spending like 800 bucks a month on it,but we've now made a decision thatwe want to go much bigger with this. We are going to use a lot more and we can't pay you the list price."
First of all maybe your pricing and planson the website don't even addressthat kind of size.It may say "Enterprise? Contact us." or not even thatfor earlier stage companies.
"So we want a deal.We want a discount. We're going to be using this a lot.We're not going to pay whatever that pricing plan is."And they're going to say also,"We can't do the click-through agreement.We can't swipe a credit card.We want to get PO's and send you checks." All that stuff. You will start getting those.
Some of those happen for some companies pretty early on, an occasional odd call like that,which is a wonderful thing to happen.In the beginning usually the founders deal with it or if there is already some other kind of executive,the marketing hire, or whoever it is. It's a volume where you can deal with it and still do your regular job.
At some point though you'll start feeling the heatand often it will happen when you start feelingyou're actually losing deals and things are slipping through your fingersbecause you're not following up properly.
Frankly, also, a lot of founders,especially technical founderswhich I assume most of you here are,they're not sales guys.They don't know what to do and how to do itand they don't have the personality for it.They don't have the training for it,the experience, et cetera,so deals will fall through the cracks. You will start feeling that happening.
Before that's happening, my advice isdon't start building a large sales organizationto make it happen because thenyou're just setting up everybody for failure.
The company is not ready. The product probably is not ready. The sales guys will be extremely frustratedbecause they won't have a pipeline.They'll come, they'll leave, they'll bitch.They'll do all sorts of thingsand it will be a big mess. That's why I'm warning against that.
That's it. Like I said in the beginning,this was almost an overviewof where we've been and the model as I think we're kind ofgetting to understand it.I'm happy to talk.I could do basically a university courseon each slide here on this deck.There's a lot of stuff going on here.
But actually, I wanted to say,hopefully these guys will invite me again and then I can zoom inon some of the topics in here — just exactly how doesthat model looks in that phase, what those numbers look likein each of these phases.A lot of people want to know that -- what do the revenue numbers look like,the MRR, the leads we're getting,all that stuff. Maybe we could get really deep in there. But I just wanted to start with sort of an overview, of the big picture.
So we have some time for questions?