Cloudflare Growth Playbook Revealed: How Cloudflare scaled to $1 Billion AR | Growth & Go-to-market-strategies | Chris Merritt, Former Cloudflare Chief Revenue Officer

00:00:00: Once you start going from tens of millions to hundreds of millions, to billions.

00:00:03: Like... You don't stop!

00:00:04: Once you cross a billion and your thinking about like well how bout two-and-a half?

00:00:07: How bout five?

00:00:08: How about

00:00:08: ten?!

00:00:09: And then just kinda keep going because Your real responsibility if you have that opportunity the REAL challenge is not The number it's that you have tucked into A problem & a mission That everybody is excited About and YOUR responsibility Is to ensure It lives upto its full potential.

00:00:26: I sat down with Cloudflare's former CRO Chris Merritt, who builds Cloudflare from one million to one billion in ARR annual recurring revenue as a CRO chief revenue officer.

00:00:41: How do you cross the billion dollars and revenue?

00:00:43: The billion dollar mark is like a waypoint thing about its math.

00:00:46: You have to have a base that it's growing That you can expand based up customers.

00:00:50: many startups never make It beyond the first million second million third million or even the fifth million an hour.

00:00:58: And then there are only a very few selected ones that cross the billion dollar revenue mark, especially in the BtoB space.

00:01:07: That's such a huge number than you have to achieve by constant struggle or constant planning and constant iteration.

00:01:16: It is so interesting to look inside and understand the framework.

00:01:21: So today it about one single question What does my product need?

00:01:28: to be able to scale beyond one billion dollars, especially in the btb software space.

00:01:35: What would you say are your best learnings on pricing?

00:01:39: what about the balance of building The Best Product versus Building a World Class Sales Organization?

00:01:47: does the best product always win?

00:01:50: I appreciate this spice.

00:01:51: i would say that

00:01:52: Without further ado, you're listening to the Unicorn Bakery.

00:01:56: My name is Fabian Tausch and please enjoy this conversation with Chris Merritt, the former Chief Revenue Officer of Cloudflare.

00:02:04: Chris welcome to The Unicorn bakery!

00:02:06: Hey Fabian thanks for having me.

00:02:08: it's good to be here

00:02:09: Since in Europe It's not that often the case That companies get scaled To one billion dollars In ARR And we have to learn from the US.

00:02:18: very Often You did it as a zero of cloudflare.

00:02:24: What would you say needs to be true for my product?

00:02:27: To be able, to scale beyond one billion in ARR.

00:02:32: I think there's a lot ways to build a billion dollar business that is healthy and scaling and growing.

00:02:39: And often thinking about it as pyramid where you have a certain amount of customers that are giving you a lot of feedback on the product That you can build upon and then as you scale up like those there's customer types will give a lot of feedback but may not pay your money.

00:02:59: And that is really healthy because the product team has alot latitude right to try things to do some experiments, There are SLAs and there expectations around how the product works, and how it integrates into their stack.

00:03:18: And candidly, how much testing has been?

00:03:21: How enterprise grade in solid is

00:03:24: it?".

00:03:27: One way that I think really healthy to have a stack of customers who're not paying you a lot... ...and then the customer's at R, they'll be able to test infrastructure on certain levels ability to confirm that the features functions at large enterprises need before they're paying you a lot of money and.

00:03:47: Ultimately getting a lot value like do you have chance to work out all the kinks?

00:03:53: so i think u earn the right to move up that stack.

00:03:56: two larger pain customers in.

00:03:58: maybe we don't have a large stack of customers are paying anything but over time, take large contracts and for customers to really bet their business on you.

00:04:10: And I think that's an earned responsibility, that... You have to take serious on the product side then go to market-side so.. It is layers right?

00:04:18: If i go back my pyramid analogy there are layers of learning along the way and leaning into that responsibility in taking it seriously because by time a customer spending money with them they're betting their organization many times and on your platform.

00:04:36: In what ways can I earn that right?

00:04:39: Earning the right is really based on trust, I think trust is... People say relationships make work.

00:04:47: they're talking about as trust And trust isn't going to get the webster's dictionary version but it feels like one gets you looking out for another person.

00:05:01: So you're looking out for the best interest of your customers, and you are making that obvious over the course of your relationship.

00:05:08: And in beginning when getting to know each other it's really about do have a problem I can solve?

00:05:15: Am i credible being able to solve this?

00:05:19: That ability to identify problems authentically solved them is where trust has started.

00:05:27: And then if you fast forward over time it's this consistent.

00:05:30: I've identified a problem.

00:05:31: You have tried my service, we think that works.

00:05:35: let take another step and exchange of fair amount value.

00:05:38: once she start paying for products in the money starts to go up.

00:05:41: expectation on realizing value continues ago but goes back to distrust.

00:05:46: nature is you don't get doesn't work.

00:05:49: You as the company providing services, you need to be honest and authentic with yourself.

00:05:54: With your team in a way that communicates to the customer like it.

00:05:57: does this really well?

00:05:58: You have a different problem so let me see if we can solve another wave.

00:06:02: but the minute they start too get little bit off target whether product doesn't really solved at problem.

00:06:09: try to force it in said differently.

00:06:11: sometimes he tried to jam it then.

00:06:14: That's where you started.

00:06:14: break trust an.

00:06:16: if u think about Earning the right to have customers spend a lot of money with you.

00:06:21: I keep using this word trust.

00:06:22: You probably do it trust.

00:06:23: count how many times i've said, but i think It is a function of being authentic and Being open and honest in direct With where at works?

00:06:33: Where it doesn't wear your trying To take the product over time.

00:06:37: Maybe it overlaps maybe it doesn t And that's How you earn The Right.

00:06:41: What are the different ways Of realized value That i could Yeah, expect from your product?

00:06:48: and therefore what are the different intents why I might buy?

00:06:54: Your product

00:06:55: as you're I think is.

00:06:56: You're starting a relationship on the products side.

00:06:59: There's often there is a there is specific thing that it needs to do And there's a certain element of I Think about like practitioners people better fingers-on keyboards using the product.

00:07:13: they will know really quickly whether it works or not.

00:07:17: And I think of them as your first line, is this going to be a good fit?

00:07:23: So getting access to them and...I think the goal of that phase of engagement is make them champions!

00:07:29: This thing clearly underste-this company, this firm, potential partner who's evaluating you service.

00:07:37: they'll look at us say They understand our problem.

00:07:40: we've tried It actually solves the problem and we'd like to move forward, moving them from sort of possibly engaging with you two being a champion.

00:07:49: Like this thing really works.

00:07:51: so I think about that first layer.

00:07:53: how do make practitioners champions?

00:07:55: And then their expectations at it work.

00:07:59: It solves the problems but doesn't cause headaches.

00:08:03: Then they move up the stack.

00:08:04: where have decisions makers who are not users or product.

00:08:08: They have agenda responsibility whether that's the CIO or the SISO, or the CTO.

00:08:15: Or the VPNs are the head of DevOps.

00:08:19: they all have agenda items and it is often like to deliver service to be organization at a certain cost And over time take that costs as percentage up the overall spend down.

00:08:31: but its an agenda item That is very different than the practitioner.

00:08:35: They're related.

00:08:37: But the agenda item is to deliver services On time on budget with certain expectations and I think about them being.

00:08:46: Two different ends of the buying spectrum.

00:08:50: one is fingers-on keyboards making sure that it's successful.

00:08:52: in other as making sure there's like socially acceptable in their agenda.

00:08:56: are you saving them costs?

00:08:58: are raising SLAs?

00:08:59: are you raising service delivery inside the organization, The the analogy that I use.

00:09:06: once you have those two parts of the organization saying this is a solution.

00:09:11: That really works for us.

00:09:13: then, i think if i'm like as bottom and it's like uh Like a dog sort of biting into a bone Right?

00:09:20: You had this bottom jaw the practitioners like yes We're gonna do it.

00:09:23: And then the top job Is the decision-makers.

00:09:26: and If you want to get Those Two working in concert Then you can take A you know good grab onto the organization and, The value will be realized at both ends.

00:09:38: And it's a much stronger relationship.

00:09:41: It is a much more secure bite.

00:09:44: You're also getting feedback from both sides.

00:09:46: Is this working?

00:09:50: Does that match the agenda of your organization?

00:09:52: I think you've got to get those two things operating in concert.

00:09:56: I'm not sure if it addresses your question But thats how i think about the questions.

00:10:00: as u asked

00:10:02: I would love to have another different angle.

00:10:05: That's a bit more on the question, like how do I cross a billion dollars in revenue at some point?

00:10:11: What about the balance of building the best product versus building a world-class sales

00:10:20: organization?".

00:10:21: So i'll take them and you ask two different questions Like one is How Do You Cross A Billion Dollars In Revenue?

00:10:28: And The Other Is How do you build up sort of product and go to market?

00:10:33: The billion dollar mark is like a waypoint.

00:10:35: And I didn't grow up carrying the bag, i'm an engineer that ultimately became a go-to-market leader in business builder.

00:10:44: but think about as math You have to have a base that's growing That you can expand A base of customers.

00:10:51: that number either has enough momentum and like escape velocity to get across a billion dollars or it does not.

00:11:05: And along the way, there's a couple of different ways.

00:11:09: you can either have millions of transactions at very small amount that looks typically like consumer model where do you have a very few numbers customers spending alot money?

00:11:21: I think the desired outcome is debt both but the healthiest business grow fastest are ones a very large addressable market that you can service.

00:11:31: small transactions in high volume, and then high transactions in small volume get the benefit of those too.

00:11:38: And the math will tell you whether you can cross a billion dollars or not.

00:11:43: If you can intellectually get your head around this thing has legs to go that distance than just start executing.

00:11:52: it's about keeping that engine going with growth and you'll cross a billion.

00:11:57: then the funny thing about.

00:12:00: Once you start going from from tens of millions to hundreds of millions two billions like, You don't stop once across a billion years thinking about like well how bout two-and-a half out five have up ten?

00:12:11: And you just kind of keep going.

00:12:13: because your real responsibility if you had that opportunity The real challenge is not the number it's that you have tucked into what problem an emission That everybody's excited about.

00:12:26: and your responsibility is to ensure that it lives upto its full potential.

00:12:30: And a billion dollars is just the waypoint, A public offering is just a

00:12:34: waypoint.".

00:12:36: I would say like... It's also the hardest part because The journey never ends!

00:12:44: And expectations don't stop.

00:12:46: You might be a public company on four or thirteen weeks sprints of year.

00:12:51: If you think about the quarterly cycle That does not stop.

00:12:57: And if you think back to, I think it was Greg LeMond that said never gets easier when you're peddling at hard.

00:13:02: just go faster?

00:13:04: So yeah, that's question one is how do we think about a billion dollars?

00:13:08: It's away point and you have to earn the right... If you can have a balanced customer set where you have lots of customers spending little in some spending a lot-that's really good base will keep growing past a billion!

00:13:22: And then your question is like, how do great product and world-class go to market?

00:13:33: As you asked the question I thought about it as Canvas.

00:13:35: If you don't have a great product than you haven't earned the right.

00:13:43: A really high quality mission that you've tagged into with a problem set.

00:13:51: That, You can solve With the team that is building Really?

00:13:55: High-quality product that they can customers think as worthy of their time.

00:14:01: let's assume that's true.

00:14:03: and then on top Of that you have a feedback loop with your customers where you're engaging with them To try to figure out what's working, what not.

00:14:12: What they don't like?

00:14:12: What competitors are doing?

00:14:14: What the context of their business is?

00:14:16: how much money do you have to spend and what the rest of your stack looks like?

00:14:19: How that changing over time...how their business itself growing or financial constraints etc.

00:14:26: That as a feedback loop for product Your go-to market team really responsible finding way to get that feed back into this system quickly And along the way, create relationships as we were describing earlier where you get a fair value exchange that are healthy structured in how the customer is going to evaluate value, especially as that spend goes up.

00:15:05: And like go-to market organization it exists for that and its like a canvas.

00:15:11: tonight I'm playbook person two degree but i really believe each of those companies in this markets are kinda unique.

00:15:23: The way you got a market is pretty bespoke.

00:15:26: so if u look at these companies yes there's some commonalities But in reality, if you dig into them like there's a lot of bespoke work that you won't find common across the other companies.

00:15:37: Let me rephrase to question and bit more spicy does the best product always win?

00:15:43: I appreciate this spice.

00:15:46: Does The Best Product Always Win ?

00:15:48: I would say winning company has had great products If look at ones that wins consistently over time.

00:15:53: So I think that there's a certain amount of, you have to have great product or the value exchange is not gonna work at a certain point.

00:16:02: There are quite lot media happening around companies without going into specifics but companies getting out of gates with strong engagement customers and products aren't living up those expectations.

00:16:14: why they're written about?

00:16:15: They've been written because their starting falling short of expectation.

00:16:21: Um, so no.

00:16:24: I don't think that you can build a great organization without a great product but i would also say like to flip it safe.

00:16:32: You Can screw up building your go-to market organization and Not have the company live Up To its full potential meaning The Full Potential of the Product.

00:16:43: So I Don't Think That Just Because You Have A Great Product It Doesn'T Mean That Your Going to Have a Great Outcome

00:16:52: And now working with a lot of earlier stage startups from seed to growth and have board seats, all the things alike.

00:17:03: I would love to get an understanding

00:17:06: for

00:17:07: the phases you look at when you look companies?

00:17:10: How are you determining and structuring different phases so that you know or can discuss with founders and entrepreneurs go-to market leaders where these companies are, probably it's not black and white but still try to help them navigate through the different challenges that they're coming.

00:17:33: And

00:17:36: we were talking about growth companies.

00:17:38: you have this first part of The Growth Curve Where They Have Market Traction In Some Fashion A Product That Is Finding a Market Better.

00:17:48: Yet The Market is Finding the Product.

00:17:51: Now you're trying to repeat that engagement.

00:17:56: How do you have customers find you and not just the first few, but the next ten?

00:18:01: The next fifty or the next one hundred?

00:18:03: And did they have an experience that is consistent and

00:18:06: repeatable?".

00:18:08: It's going from what I call sort of like this mad science where in a lab... You can kind-of get it to reproduce every once in awhile.

00:18:15: so we know how to do this and you're getting consistency.

00:18:20: That I think is all the first phase, And there's so much learning loops... ...and You just trying to get it at a point where you know how to repeat it?

00:18:29: You can repeat creating the product delivering this service.. ..And finding customers that have those problems in creating some fair value exchange In-in.

00:18:39: they probably figured out whether you had good unit economics like Is This Thing Going To be a healthy business if we scale it.

00:18:48: I think that's phase one and its just getting the repeatability consistently, then you get into like crossover in to have something working.

00:18:59: now your gonna throw some gas on fire but you're going.

00:19:02: see if you can scale beyond five ten million dollar Maybe it's twenty million you've gotten to depending on how fast your growing and can you bring more resources in?

00:19:15: To the organization.

00:19:19: And there was a subtlety in their which is, In the beginning.

00:19:22: You have its.

00:19:23: The organizations are full of very mission-driven people.

00:19:28: This is their life's work.

00:19:29: this what they want to do now.

00:19:32: They typically found their founders, and they're early engineers.

00:19:36: And maybe some early product people in some really good market.

00:19:39: folks like they are driven by the mission.

00:19:41: once you start to get out of that first phase into the next phase They might be interested in the mission.

00:19:47: then he might really think it's cool but they weren't there when It was very uncomfortable To make that decision socially unacceptable.

00:19:56: Nobody'd heard at the company.

00:19:58: not everybody agreed with how its gonna get solved.

00:20:00: So your bringing people in there up?

00:20:03: quite the same level of conviction up to founding sort-of fifty or a hundred people.

00:20:09: And not to discredit any work that gets done by team because it is still really hard, but can you bring in and short fashion they catch fire on mission?

00:20:22: They're able do their job with consistent outcomes.

00:20:26: so I would say its more about bringing new scaling the organization into, this is now repeating beyond sort of that high conviction mission driven early team.

00:20:41: And then can go up to.

00:20:42: I call it a hundred million dollars.

00:20:45: you could say its more depending on check size but it's very hands-on process and still know most people inside your organization are still interviewing almost everybody who comes in And there is a high-emission composition.

00:21:00: There's a lot of DNA that the original team has sort of ensured, as repeated in this next phase It's diluted it little bit but not a lot because its very hands on.

00:21:12: and then the third phase beyond that Is scaling so fast and it's deluded quite alot Because you're just scaling some many people You are not able to imprint the dna quite much.

00:21:27: So that next phase is really a function of, did the momentum from the second phase?

00:21:34: Did it

00:21:35: carry like... Is now the momentum obvious?

00:21:38: and they'd say uh It's like this virtuous cycle as working as in-as a machine.

00:21:44: And its less personality driven.

00:21:46: I know it's little bit um A little vague and certainly not as spicy As i'm sure you'll spice up with some questions.

00:21:53: But think about those things Like Can You Repeat The Science Experiment Can you bring new people in?

00:21:58: And then the third is, does it... Does the machine have momentum?

00:22:01: When we look at phase one I have to find first signs of product market fit.

00:22:07: There's something that could be a fire At some point That i could pour oil In.

00:22:15: How this currently changing ?

00:22:17: I'm very sure how Go-to-market and everything Like generally companies were built ten years ago, five years ago.

00:22:28: Twenty years ago differs a lot from what's happening currently and I'd love to understand.

00:22:35: What do you think are the biggest differences that your currently noticing?

00:22:39: I think there some changes in how the companies or like How the stacks were being built.

00:22:44: right now If You take it From The Customer Side Ten Years Ago That the way SaaS was Built And The Way The Infrastructures Were Built It Was Pretty Known Problems the trajectory of your business, you knew how this transition from on-prem to the cloud was happening.

00:23:03: The unbundling of all of the software that used to buy from SAP Oracle Microsoft is coming into individual apps.

00:23:11: it's pretty rational and straightforward...the customer problems were pretty straight forward!

00:23:17: And cycles are measured in three or five years Not without the market ups and downs of economy, but that transition was pretty rational.

00:23:30: The transition.

00:23:31: right now with companies having these existential moments I have this large customer base what is AI going to do my business?

00:23:39: Just think about customers like.

00:23:41: there's a risk if they don't evolve to adopt new leverage points.

00:23:48: you should be able get out machine learning or AI or use any of the terms you'd like to describe it as.

00:23:56: If you're not intensely focused on how your business is going to change, You fear that you are gonna run out a runway and your businesses will go under.

00:24:06: so there's this big level of angst in the marketplace causing customers.

00:24:12: try rethink their engagement with their customer and all back office functions In lens.

00:24:18: what do they do?

00:24:20: That is very different than this rational sort of like Unprem the cloud migration and unbundling of software.

00:24:26: Like that The market forces are different.

00:24:29: so if you watch companies get built right now, they have They're going to that early phase?

00:24:36: They have customers coming at them with massive desire a need And spend.

00:24:40: it's not like the prior ten years I would argue It's not liked last fifty years Where they have to make these big Experimental bets and I think it's still in the experimentation phase.

00:24:52: How do you use AI to change?

00:24:56: The engagement with customers, And what?

00:24:58: how are your run your business?

00:24:59: there is a bunch of experimentation going on but the money does not look like experimentation money historically its big spends.

00:25:07: so i think that if You're building out one of these companies That Is small especially If Your in the AI space you see check sizes coming at you.

00:25:14: They Are Not Like five, ten, fifteen thousand dollar spends.

00:25:19: that might have happened

00:25:21: for

00:25:22: a new service ten years ago.

00:25:24: Fifty hundred thousands of dollars in some case millions to do experiments on AI.

00:25:31: so I think you can be this first phase and have radical spend coming at you?

00:25:38: And the question is Do I have product market fit?

00:25:43: Is it, is this really going to repeat?

00:25:46: or the Unidock economics like do i understand them.

00:25:49: Or as this just happened be at the right place in the right time but... ...I may not be a winner in that category and maybe not even competitive because somebody over here is getting.. ..is building better mousetrapers ,building a better model leveraging the models fast .

00:26:04: The cycles are so fast money.... ...is on different scale than has been seen before.

00:26:11: I think there's a lot of mixed signal in there, but the context is very different.

00:26:15: What would be your tips for founders who are currently doing founder led sales and on-the-way to their first million in ARR?

00:26:23: And then also thinking about okay i want repeatability as early as possible...I think it will definitely needed at some point If we make it to bring on somebody, but how long do I do find a lead sales?

00:26:39: When do i try to bring in the first person.

00:26:42: What would you say from your experience?

00:26:44: I think founder led sales are great because that why don't they say that The feedback loop between customer and That team responsible for the product is like there's no gap.

00:26:57: There's no air gap between the two Like No daylight between the Two.

00:27:01: And what does that mean?

00:27:03: That means that the founder is getting real-time body language, real time data feedback and real time verbal feedback from a customer.

00:27:12: And when I talk with founders who are doing founder led sales they're especially ones actually growing.

00:27:20: They listen and react but don't like have backbone know why in their business not going to get pushed around because convicted on problem.

00:27:32: So at a certain point, the founder... Like when the founder feels like hey I'm getting consistency.

00:27:39: I've listened to feedback we have addressed the feedback and now this thing is repeating And i am now comfortable that somebody else can work alongside me?

00:27:51: If I weren't in the room Now the question what kind of person do you bring it?

00:27:56: But its where your feel as if you had the feedback consistent enough, and you've addressed it.

00:28:02: And the customers are getting value in consistency out of their engagements with

00:28:07: you.".

00:28:07: That's where I see founders starting to bring-in not just customer founder but customer founder.

00:28:12: on then that third person which is hey can i get somebody new?

00:28:16: To take a lot of the repeated responsibility... ...and do this at scale or least at the next phase of skill.

00:28:24: um But It's that transition when the founders like I now think this thing is repeating.

00:28:30: So, i think there's no like absolute value of when you reach this amount of revenue that just happening or these amounts of customers because it dependent on your product and your average contract with the customer everything.

00:28:47: so its not easy to say specific revenue corridor right?

00:28:55: You could say it's probably single digit millions.

00:28:59: It is not tens of thousands and it isn't tens of millions, somewhere in that band where you think about the job as a CEO or founder-CEO.

00:29:10: specifically they won't be able to scale their business if spending one hundred percent of time engaging with customers.

00:29:17: now I think there are certain amount of times when they should engage customer forever but its not one hundred per cent at this point.

00:29:25: You joined Cloudflare in the single digit million in ARR.

00:29:31: Why was that?

00:29:32: The right timing?

00:29:32: I think they look at this.

00:29:34: At the time, there were three co-founders.

00:29:38: one Was very technical One was Very commercially minded meaning The business model and strategy And then one was the glue person.

00:29:50: They built a great product In community.

00:29:52: finding them It was repeating on paper.

00:29:56: If you looked at it like there were many, many signups every day just finding Cloudflare most of them in your ninety five plus percent of them spending nothing.

00:30:07: so it was this we think We have a certain level of market pool and There was not a go-to-market person On the founding team that had built a business like that before.

00:30:21: So I think they were trying to augment The team with good sort of fundamentals, commercial go-to market architectural fundamentals.

00:30:29: And the market was pulling the product.

00:30:33: so it's like a combination.

00:30:35: those two things composition team and healthiness of the market pull early on.

00:30:41: So you've been that person that you refer to earlier when he said now who is the person I want?

00:30:48: bring one?

00:30:51: Who are you in?

00:30:52: why were you right person?

00:30:56: You might zoom out for a minute.

00:30:57: I think that if you know all the feedback when, When your being recruited about yourself If could go back and look at all of interview notes people had on you...I don't think you'd want to Know it!

00:31:08: So thankfully i dont have All The Interview Notes.

00:31:12: I Think That What They Had Been... I Dont Know The Whole Story Of Everybody They Talked To But If Were In Their Shoes And If Were Gonna Go Back Do it again.

00:31:22: I think you talked to some of the incumbents, if they're going down the list on how to transition the network stack from on-prem to cloud which was the remit at that time for Cloudflare?

00:31:34: They've expanded the aperture certainly beyond that at this point.

00:31:39: but at the time You should probably talk to the folks who were selling boxes.

00:31:42: At least understand and very least get a market intel And i can imagine what would have done then any of the one U network boxes that were in the marketplace.

00:31:56: And I think that would give them interesting feedback, The truth is also when you're building something thats different than a market place there's this like phase change or platform shift?

00:32:08: i don't want somebody to bring the playbooks from old way doing it because its what your gonna get and not an new.

00:32:18: You know, my own profile is like I said before.

00:32:21: I didn't grow up carrying the bag.

00:32:23: I was an engineer coming out of school but i was not a network engineer which means that got zero credibility inside the organization.

00:32:29: um...I would be teased.

00:32:30: they'd be like you're-you are non-engineer and well technically am an engineer..i'm NOT A NETWORK ENGINEER!

00:32:34: Um....but That Was Like A Teasing.

00:32:36: I Would Get So , I had this engineering mindset .

00:32:39: I Had A Certain Level Of Go To Market Experience Across Other Categories And Industries ..and I Think I Had Enough.

00:32:46: Naivete Like you have to be a little naive, step into these things and think that I can learn the stuff.

00:32:56: And then there are certain cultural aspects that will change for the markets.

00:33:18: The America's markets operate very different than many of Asian markets as an example, and Europe has a different flavor as well.

00:33:27: so even inside Asia like Singapore is very different from China.

00:33:32: I think you had...I have a lot of market context.

00:33:36: having built businesses domestically overseas I dragged my family all over the world You know, I had learned... Had that sort of lived-learned experience and a lot of energy.

00:33:50: And enthusiasm in naivete.

00:33:52: So i think they probably saw some combination Of those things but thankfully like l said don't have all the feedback to also see All the thing's that didn't like.

00:34:01: It turned out great.

00:34:02: i guess Probably wouldn't go back and change their decision.

00:34:08: But let's flip the switch and say, I am a founder that you're advising.

00:34:13: And I'm approaching this stage of hey, need to start looking for somebody that i could bring on as a support in go-to market or then over the long term maybe even taking over.

00:34:26: what would you advise me?

00:34:28: I love two minds.

00:34:30: ask me again like five or ten years all have another opinion.

00:34:34: The debate is whether you bring someone who's junior senior And there's blessings and curses with both sides of doing that.

00:34:44: I think the benefits are bringing somebody in junior is they don't have a lot of skepticism coming in, or patterns you're having to overwrite meaning They'll come into learn product.

00:35:01: The machine will just start running Without having a lot of these patterns in their mind that they're trying to match.

00:35:10: and There's a benefit to that because you're gonna get pretty fast Execution, and your you're going to get it stylized around the existing team.

00:35:20: so the existing Team at the typically the founding team And there's a Benefit To That.

00:35:25: So if The If The Existing Founding Team Is Doing Things Right A junior person will augment Will sort of repeat that.

00:35:35: And the benefits is you'll get straightforward execution and not a lot of coloring outside the lines, and W typically are little bit easier to keep inside the lines.

00:35:48: I think if you jump on the other side or hire somebody who has more experience they've got patterns in their mind at least trying to figure out how apply these patterns.

00:36:00: like i have seen this before under industries there may be feeding back, giving like nudging the team a little bit.

00:36:07: Like hey I heard this thing.

00:36:09: we might want to move a little in another direction.

00:36:12: so they're going color outside of lines and sometimes founding teams just don't want that.

00:36:19: So there's some things you can do.

00:36:21: please get into box.

00:36:30: You'll hear people say, well is there a person that you hire?

00:36:33: That gets from zero to ten or one to ten and then there's a person from ten to fifty.

00:36:37: And then fifty two hundred.

00:36:38: in fact One of my uh...one Of the folks I know In The Industry was trying To write A book on this and they called them.

00:36:45: We were talking about it.

00:36:46: he said Well can you give me some feedback On the kind of Person Who Goes Zero to Ten Fifty Two Hundred?

00:36:51: and i said well i just disagree with the premise because If you change over your sales leaders or marketing leaders, any of your leader typically get a changeover in the team that they've recruited.

00:37:05: People don't leave companies but managers.

00:37:08: so I think you inherently introduce more churn to teams when you changed their leaders out and the one axion like back-to-the physics.

00:37:19: tenure drives expertise The more expert they are at their job and expertise drives productivity.

00:37:28: Like the better, They aren't a job them or they can get done.

00:37:31: So if you change the team out You're introducing a certain dip in productivity And that is anathema.

00:37:40: That is like the last thing you want as your scaling of business Is to take productivity down?

00:37:46: Do wanted it go up.

00:37:47: so I just think inherently have this tension of.

00:37:50: Yes, there are some natural sort of boundaries that people are good at.

00:37:56: But you want somebody who can take as far as possible so they reduce the churn in the organization.

00:38:03: and selfishly when I joined Cloudflare i was looking for a canvas that could build on... Somebody once said like hey!

00:38:12: You're going to be excited if we cross one hundred million dollars?

00:38:15: It's a waypoint.

00:38:17: And they thought I was crazy at the time, but I was serious.

00:38:24: So my lens was to go across multiple phases and build a very large organization... ...and i think it's possible if you get the right leader or has the right lens.

00:38:40: You didn't ask this But typically experienced folks have hard times coming down when its super risky because in their career They've sort of been de-risking.

00:38:49: So if you bring it down to when the super risky and where they're doing individual contributor kind of work, take a certain person to do that.

00:38:57: Whereas If You Hire Somebody It's Only Done Individual Contributor Kind Of Work.

00:39:00: They Typically Like Their Learning All The Management Piece At A Certain Point.

00:39:04: so like in which problem set Do You Want?

00:39:07: Would You Say Its A Mindset For The Leader That You Are Hiring That They Also Aren't Allow To Think And Like Hey I'm The Person From Ten To Fifty Or does it depend on how fast can you grow personally to keep up with the growth of the company?

00:39:29: I rarely see people define themselves as, i'm the person that goes from zero like one-to ten or...

00:39:35: ...I saw this more often in the US than in Europe.

00:39:40: When I talk with people in the industry they don't introduce themselves that way.

00:39:45: They will sometimes get categorized by others, and if they're trying to be like easy-to-get along with maybe they'll regurgitate that.

00:39:55: But I don't think people really define themselves that way.

00:40:00: Not in the micro at least not one to ten.

00:40:02: or...they may say i'm an early phase person And what they might be saying is I like it when things are undefined?

00:40:14: I'm used to working in billion dollar plus organizations and uncomfortable there when it's more data-driven anonymous.

00:40:21: And, uh...I don't think that means they are self defining In the early phases..and i would argue if you're self defining pause and really thing through why your saying that If theres some missing link fillet in like or there is a gap of experience fillet because these are artificial limiters.

00:40:43: So why in the end were you able to grow from?

00:40:48: Approximately one million an AR two.

00:40:51: One billion and they are with the company.

00:40:54: well, I think get that great product.

00:40:55: it starts there we talked about earlier night.

00:40:57: They could be.

00:40:57: It's just be untrue if i said That was not The case.

00:41:01: so i think have that great Product.

00:41:03: And then i Think You Have To have a Learner's Mindset and You Have to Constantly Be Seeking out what'S Not Working Actively Seeking What'S Not working And prioritizing that in the context of all the work to be done.

00:41:16: There's a certain amount of debt, like you do things that are short-term nature and you know your doing them... ...and the question is whether good at writing them down then going back and fixing it later?

00:41:28: Then if that debt builds up too much.. You sort of topple over because what you're building isn't stable!

00:41:35: I think thats where leaders like myself....I think thats the risk for doing this work having this balance of, are you learning?

00:41:44: The category I described the start earlier.

00:41:47: The category that Cloudflare started in.

00:41:50: it was a widening aperture over time and the question is can you learn to keep up with the markets?

00:41:57: And what you knew about the markets to be true in year one is not true in years three four five eight ten.

00:42:06: You have While I was not a network engineer, as an engineer and knew how to learn.

00:42:13: I understand physics.

00:42:15: Um i think the hardest part in all of that candidly is if you're Not The user Of the product it's harder.

00:42:22: so If You really?

00:42:24: Have never used the Product at Think At A Certain Point That Becomes Really Hard And It'S hard Over The Course Of A Decade Yeah To Become A Market Expert If Not A User Expert Which Means You're Learning About this changing dynamic market.

00:42:40: So I think it was pretty good at learning and i think that surrounding myself with people, You know, if you're not a little bit paranoid going into work like am I learning fast enough?

00:43:09: Am i bringing in the right people and my keeping up with my peers.

00:43:13: Am I constantly sort of breaking through that calcification That comes as your inner role for awhile?

00:43:20: And you're getting feedback.

00:43:21: whether you like it or not you are getting feedback.

00:43:23: It's not all positive.

00:43:25: The question is what do would sometimes be rejected You know, and that's like a normal defensive reaction.

00:43:37: There is often too much tone in the feedback.

00:43:40: it's spicy to use your comment earlier.

00:43:43: It's spicy feedback or its negative And you have to sort through Like okay this making me sad Or Its making be uncomfortable But there was message In their.

00:43:54: what am I gonna do with them?

00:43:55: Am i going To improve areas that need to improved ?

00:43:59: Or am i going to hunker down not take the feedback and be a learner, ultimately get passed over.

00:44:06: And I think that was pretty good at being resilient in this way.

00:44:09: One of things you mentioned earlier for success is like small distance between product feedback and implementation.

00:44:18: So remember we're still on phase one.

00:44:20: We are trying to find product market fit and repeatable process.

00:44:26: What does ground work i can do to intersect product and go to market as deeply as possible, that I won't have two parts of the organization that are drifting further and further away when the organization is growing.

00:44:43: Let's talk about product experience for a moment.

00:44:45: so if i'm a customer using the product-I am a practitioner!

00:44:49: I'm experiencing in real time like whether this thing works and solves my problem okay?

00:44:56: As Who is getting the feedback?

00:45:01: Is it a salesperson that is engaging with the customer, they're seeing the feedback.

00:45:07: But like I've described earlier there probably not a user of the product for all and they're losing fidelity on what the customer is really experiencing.

00:45:27: And then, their taking that feedback in giving it to product.

00:45:30: so like this you lose fidelity on one... ...and than you loose as your translating into products of this fidelity loss.. ..is a problem!

00:45:41: It comes out in few different ways.

00:45:43: One way come down is You are given wrong feed back to product And so you fix the wrong things, or you'll curate the product experience in a way that is not really getting at the problem.

00:45:56: That's problem one and that's bad.

00:45:59: Problem two is by the time the product team figures out oh!

00:46:03: The feedback we got from this go-to market organization was off target?

00:46:08: You now lose respect like credibility and respect... ...and start to have this happen inside of your organization.

00:46:17: And there are other problems, but those were the main two as they manifest.

00:46:20: So it's like what do you do?

00:46:21: Well I'll tell you what you do.

00:46:23: You go back and actually get the product team... ...and then go to market organization To basically hear the customer at this same time.

00:46:37: That is a better recipe for high fidelity feedback.. ..and a team that also learning together Both get like, oh the customer is really what these are saying as this.

00:46:50: The product team can interpret it better so that they go to market teams and say Oh!

00:46:54: That's what they meant.

00:46:55: So their learning at the same time As compared with loss of information flow In early days having a product in go-to-market experiencing customer feedback sessions, which means going on joint calls pitching together and doing support tickets because that's where you get direct feedback.

00:47:25: Where all the feedback points try to do those together so that you're learning at the same time?

00:47:31: I think it's one of the hacks.

00:47:32: Fair.

00:47:33: And I think that super important.

00:47:34: It is not often talked about like parts like go-to market or product, anything else quite individually and often forget that these are intersecting parts.

00:47:47: When we think about the phase while were growing knowing it's amazingly hard to find first customers then build a product and grow from there more customer repeatability when is next point feels like a make or break for, let's say especially venture firms that have to fulfill.

00:48:12: A need for high growth.

00:48:14: what is the next part?

00:48:16: That will be after I found

00:48:18: the first

00:48:19: repeatability and The First.

00:48:22: Like i know my ICP is...i Know how To approach them.

00:48:26: What Is the Next Barrier That Im Running Into?

00:48:30: The reaction that I had as you were forming, is i was thinking through like the scars.

00:48:35: Like where are the points in my past that hurt them most?

00:48:38: As you go across that phase and one of ones comes to this surface- You have this element... I talked about it earlier but think its important to rehydrate for this part of conversation.. You're a founding team!

00:48:55: And not just founders.

00:48:56: It's certainly the first fifty to a hundred people and they are so driven by, By The Cause.

00:49:08: And as a result They pay attention To every single detail and they care deeply when you get into like.

00:49:18: oh this is now happening.

00:49:20: There's usually in the beginning there's very little buzz In the market.

00:49:23: there's almost no buzz it's Nobody knows.

00:49:26: this problem the set that people are working on except for like really highlights, they have a good taste.

00:49:35: They know what their thing is and they've been flocculate.

00:49:37: oh I've been trying to solve this DNS problems forever!

00:49:44: This is the only place where i can solve it.

00:49:46: Like...they're driven by these problems.

00:49:49: That's The Founding Organization of Describing Ground.

00:49:53: Then the next part is, there's usually signal coming out.

00:49:56: This was a hot company that it's getting funded like.

00:50:00: now you have all this signal coming up and bringing in different kind of person to be organization.

00:50:07: oh I wanna work on something fun.

00:50:09: i want to work on some exciting.

00:50:11: they're not... There's nothing wrong with them.

00:50:13: They just come at it.

00:50:15: Not when they are drawn by problem or really draw by something flashy And good antibodies They will keep the wrong people, like antibodies meaning if they're founding team.

00:50:27: Like...they act like antibodies and it'll keep them from getting in.

00:50:33: but that's not just the same DNA.

00:50:36: so this next phase you have a group of people who are really interested building out an organization around these problems probably interested into mission.

00:50:48: then we catch on to more over time.

00:50:52: But the challenge is like they, there are not as connected to the problem set.

00:50:58: And while they care about the work that if you're doing They don't care as deeply as the founding organization.

00:51:06: so in this next phase As their scaling out The engagement with customers I think the risk Is You Don't do it as carefully.

00:51:18: And how does that manifest negatively?

00:51:20: It might manifest negatively where the founding team sort of knew exactly, you know.

00:51:25: The founding organization started to do exactly what the problem was and they knew exactly how to position it and then knew exactly if the customer said X what they meant.

00:51:35: Then next group people don't have that same level like perfection and can come across as a little bit careless Not living up to the standards that were set in the first side.

00:51:50: So things get a little bit looser and it's that disconnect in The precision of the organization.

00:51:57: so in this next phase With high product market fit, the company can sort of go through That because there's not the hundred percent Precision required.

00:52:08: the product works so well.

00:52:09: the value exchange is working playbooks that have been getting defined or tight enough, but if those conditions are not true.

00:52:20: If it was not as perfectly product-market fit... The market has changed a little bit and competitors have reacted perfectly.

00:52:28: the precision is not one hundred percent.

00:52:32: this where its gets loose.

00:52:34: so they can start to fall apart.

00:52:36: It will manifest.

00:52:40: Results are not repeating.

00:52:42: the productivity is lower.

00:52:44: The customers are churning at a higher rate and then like, Then there's that can be the finger pointing which is out of the new folks just like they don't care as much.

00:52:54: They're responsible to careless.

00:52:55: They're not very good And unlike the organization starts to fall apart.

00:52:59: But I really think it's like the DNA in the precision between the early team and the next scaling Team.

00:53:06: That's where i see one Of the biggest risk points.

00:53:09: So what did you do as the leader of the go to market team?

00:53:14: To bring these folks together instead of letting them let's say Yeah, throw Names at each other being like hey.

00:53:27: You're not a non-productive

00:53:28: know your

00:53:29: whatever like.

00:53:30: so What would she do too?

00:53:33: make Both parties who are one team in the end, but like still and working for the same company.

00:53:39: But pull on the same string instead of an opposite sides?

00:53:43: I think there a few things.

00:53:46: um i Think if you zoom all the way out?

00:53:47: One Of The Things That One Of Those Smart i Think smart Decisions We Made As A as A Team Early On Is You're Trying To Find Your Tone?

00:53:56: What's The Experience You Want Customers to Have?

00:53:59: You just start with that.

00:54:00: What is the experience?

00:54:01: and you try to get as close to high fidelity, early experiences of customers had?

00:54:07: Well most customer were experiencing a company through the blog for first time.

00:54:12: Very technical blog very technical users practitioners in there like highly stylized writing by product engineering team.

00:54:21: so have this memorialize version.

00:54:25: what's-a-product?

00:54:26: why do we build it?

00:54:27: And it's written by engineers, for engineers.

00:54:31: So like why do I bring this reference up?

00:54:34: That was the tone that the marketplace were reacting to favorably.

00:54:37: so we said okay... We have to amplify and repeat that tone!

00:54:44: As we brought the team on how you create a go-to market organization that matches the blog technical blog.

00:54:53: so in the beginning.

00:54:54: The only people that could really match that were solutions engineers like very technical, People that we brought into engage with customers and early as we found a is there had engineering backgrounds or hit sold their technical products than they were technically oriented to.

00:55:13: you.

00:55:13: sort of match as much as you can this this tone for the organization.

00:55:19: largely what we've been talking to it up until this point is like technical products for technical people.

00:55:25: It translates to other categories, but I think one of the most difficult areas too match as like technical product and non-technical people.

00:55:36: so you're constantly sort an evaluation architecture that was really around like, we'd get them to read the blog.

00:55:53: We would get him to use the product and stand up in a website put Cloudflare around it and then react to it.

00:56:03: And you're able to evaluate really quick whether they one are technical or two have an interest of three can learn things?

00:56:10: Then four expend energy.

00:56:12: just stay with...we were pretty slow on hiring people.

00:56:17: We'd have them meet five, eight, ten, twelve people.

00:56:22: And if somebody was just looking for a job with the hot company they would find a job quicker than we would react to...we wouldn't wait then out.

00:56:30: and if they were able to sort of learn and keep that standard to the blog like that's how we did it.

00:56:38: because we wanted to keep that experience high highly technical or at least, highly technical capable.

00:56:49: They could learn and match the expectations of a technical

00:56:55: engagement.".

00:56:56: I think that's some of this secret sauce on how we did it in the beginning because it just kept... It kept that component high.

00:57:05: with an organization that was very technical building technical product-it was easier for those people to engage.

00:57:12: And then if you fast forward, that high technical mix on the go-to market team early on.

00:57:21: We kept that standard high for a long time and I would argue That's really the secret of success Of You know?

00:57:29: The team over time On the go to market side and i'm super proud of that work.

00:57:34: But it was not easy in It...you Would get feedback!

00:57:38: You'd Get Feedback Really Fast When Persons Just Not A Great Match on the dimensions we were just talking about.

00:57:46: Or they come in and then like, They were able to keep up learning for a period of time but their not keeping up And they can't stay.

00:57:54: You mentioned you had very technical product.

00:57:58: There was certain amount of understanding needed For it being sold and also communicated To customers.

00:58:08: How quickly after I started at Cloudflare Would i have been contact with customers?

00:58:13: Or did I have to run through a training center or like, what was the ramp up period for me if i would start there under your belt so that you can be sure.

00:58:26: That I am living up to the quality expectations that you had?

00:58:31: I was fast super-fast we would... We didn't onboarding in the beginning.

00:58:37: it was cultural and product And they were really intermingled.

00:58:41: Why did we build certain things?

00:58:43: How does the product

00:58:44: work?".

00:58:45: It was not playbook-driven, it was like do you understand what we're doing and why and what the zeitgeist is and why we exist in a

00:58:52: marketplace.".

00:58:54: We would also tell stories about Cloudflare.

00:58:58: at its best if I put myself back into those shoes... At its best it looks this way you get yourself tested as when things are the hardest.

00:59:09: So, when Cloudflare had its worst days like this is how the company responded?

00:59:12: You would tell those stories and that's really how we got people over sort of the product in a culture why they exist.

00:59:19: so now it was like first week or two And then from there straight to customer engagements working with smaller customers who were not spending much time doing support tickets.

00:59:35: it was both of those that you're getting your hands on the product.

00:59:40: You are directly thrown right in front of customers with technical needs and, That would force to apply learnings they just had.

00:59:51: They said TLS SSL.

00:59:53: what's difference between two?

00:59:55: The very detailed question like TLS I can't spell TLS What does this mean?

01:00:01: And the organization was very good at not just answering the questions, but like hey.

01:00:07: Not giving them fish, but teaching them how to fish.

01:00:10: and I would say that's also one of our superpowers and I credit early SEs being doing their work by helping people learn along ways.

01:00:23: so they were gentle and good teachers.

01:00:27: SE is being solution engineers right?

01:00:29: Yes, thank you for translating that.

01:00:32: So Fabian if were in the organization would have experienced customers within the first couple of weeks and at pace?

01:00:39: And it wouldn't been uncomfortable or not?

01:00:40: what had been a point to learn quicker when your in these uncomfortable positions.

01:00:45: Fair point because I know both sides are companies with hundred million ARR here in Germany.

01:00:53: technical product pretty much an academy and test that you had to run through after the first months, probably one or two months.

01:01:02: Then they decided if they keep your knot then there are ones who throw you right in.

01:01:09: so for both there's place.

01:01:11: There is a place I think back into this pyramid of having large set of customers not spending a lot with and you have a large pool, it's pretty easy to put people in there.

01:01:27: And to have them not do harm but learn?

01:01:30: It's different.

01:01:31: if you only have fifty-to-a hundred customers and they're like the crown jewels... You are going to wait to put new people in front of that.

01:01:39: That is very rational!

01:01:40: The question is Do you have this spectrum of customers interact with?

01:01:44: Is their an appropriate place for new people learning?

01:01:47: Why are so many BtoB companies stuck in the death welly of like three to twenty million and ARR?

01:01:54: Well, I think that the cop-out answer would be not all products are great.

01:02:00: And you know what.

01:02:02: then i say that kind of tongue-in-cheek when You start to scale The product and put new people into it for all the dynamics That we've already talked about the pretenders get sorted out and I don't mean that it pretenders is probably a an unkind way of saying it.

01:02:20: But if its not a great experience for the customer, customers vote with their feet and once you really start spending money I'm not talking about twenty dollars a month Once you started spending hundreds or thousands of dollars.

01:02:34: that's real money And especially technical users.

01:02:40: they have no time to.

01:02:41: product doesn't work or they have no time for an engagement that leaves them flat, the friction that is slowing down or stopping the organization from getting traction.

01:03:17: What's needed?

01:03:20: once I figure out, okay my product is good enough and i can keep up momentum?

01:03:27: And at the same time it's a competitive landscape.

01:03:30: I have to also land grab because otherwise my competitor doing in.

01:03:36: how am I balancing aggressiveness with health?

01:03:42: healthy company, not sure if metrics is the right word but more like building a sustainable company.

01:03:50: You know what?

01:03:51: The adage of speed kills when you apply it to your car or if you applied too much acceleration and rear wheels break loose and then spin that car out as an easy example.

01:04:03: there's this sort of consistent acceleration that vehicle in motion can handle.

01:04:11: I think the same is true of building a business.

01:04:13: There's a certain level of rational growth, and i'm going to come back to your comment around land grab in a moment but you know it sort of like consistent rational-building.

01:04:26: um if somebody was describing at once as how do you fly a plane?

01:04:30: You know How Do You Crash A Plane?

01:04:32: Your Job As A Pilot Is To Kind Of Keep It Like Ten To Fifteen Degrees The Nose Like Ten to Fifteen degrees Above The Horizon Sort Of Above and too much, it stalls to low when you crash.

01:04:43: It's like keep in this rational zone of

01:04:46: growth.".

01:04:47: I think that analogy applies building businesses as well.

01:04:51: the minute they start bringing into many new people or really fracture out team across capturing two different product categories at once your spread to thin and variability goes up.

01:05:09: So like this sort of rational growth.

01:05:11: Now, if you're in a market where it's land grab which is everybody is in the market right now and You're either gonna get them for this next three-year spend or not Okay then you have to take a risk And you have go fast.

01:05:30: Most businesses are not on a land grab.

01:05:32: I think this land grab term Is one that almost people expected in the startup scaling playbook, I don't believe that to be true.

01:05:44: And now you know smart people will come and tell me i'm wrong and there's all the evidence that land grab and hyper-scaling is the way to go like... That might be true but if you think about sort of rational business building with learning loops that can actually take into account Building out the team in a way that they new people have chance to actually rack ramp up to be experts and productive before as you're bringing it into focus.

01:06:13: but if u. If your like ramp-up the team minutes one existing team member two ten new people like how are they gonna learn?

01:06:23: so what should get into these out of whack i think is where this organization's like, you know the vibration goes up and then it falls apart.

01:06:32: There are some tricks when it comes to hyperscaling and lambgrabbing, but make no mistakes.

01:06:39: It's high risk when you scale up.

01:06:42: so I would really challenge this notion of if your gonna grow faster than two X where you're doubling the size in the organization at scale?

01:06:53: Its one thing that three x'ing is small or large into the organization if you're having to grow the team at that pace.

01:07:05: If a customer spend is just going up that much,

01:07:08: like...

01:07:09: That's not a land grab-that's just customers spending more.

01:07:12: What is your definition of large in this case?

01:07:15: Large in terms of customer size?

01:07:17: Large when you are doubling it as size and its large?

01:07:21: Yeah

01:07:24: I think i would say large in these cases where north of one hundred million dollars.

01:07:29: So if you're a hundred million and your doubling, putting all of the infrastructure or billing infrastructure under strain.

01:07:37: You put in physical footprint like how many people?

01:07:42: In what countries understrain?

01:07:45: And you are putting hiring

01:07:47: etc.,

01:07:49: The question is Are you getting ten X increases in customer spend?

01:07:54: Well then that case doubling at one-hundred million dollars is not, you're not going to challenge those systems that I just described.

01:08:03: But if it's... You getting ten-fifteen twenty percent growth thirty forty percent growth and your bringing on incredible amounts of new customers in court.

01:08:11: they require engagement?

01:08:13: That when the system scaling start get really tugged down and vibrations might break them.

01:08:21: so i guess its about a hundred million dollars.

01:08:22: im talking

01:08:27: super hard to answer in general.

01:08:30: But as you're working with different companies, have seen a lot and experience a lot with Cloudflare as well what would you say are your best learnings on pricing?

01:08:43: I know this will be worth an episode itself or two episodes of five but still i need to put it into there.

01:08:49: yeah um so when you see pricing ,I hear pricing and packaging .i think they go together.

01:08:56: I think the discipline of pricing and packaging is, um...I guess one of the big unlocks.

01:09:01: And it's probably the area that in the beginning has not given that much thought.

01:09:07: It doesn't mean to be critical about this.

01:09:14: You create a product you have a unit measure how your going price for it then set a price point Then take up or down.

01:09:20: if u buy more less People are consuming and they're buying something.

01:09:28: In the beginning, you're looking at it going oh that makes sense!

01:09:31: You just look for the oh-that make sense head shake in checkbox so that you can move

01:09:37: on.".

01:09:38: And then a certain point your'e at scale and adding more extensions of features maybe or charging those features.

01:09:48: And then you get to the point where now, you probably have another product category.

01:09:51: This is as a company... You desire to have multiple products in multiple categories for all of reasons that we can go into if like.

01:10:01: but on pricing and packaging side this is when your historical pricing starts to come under pressure.

01:10:10: Those pricing decisions are often heritage Deep in the bowels of history, they're set.

01:10:18: They are typically set by The most senior early founding like often by the founders.

01:10:25: So you like challenging them later as You have brought more market to bear and you have other price Other products to price In concert with the original product.

01:10:41: This is where it becomes a game packaging.

01:10:44: So who are the users?

01:10:46: How are they consuming it, what's relevant to their use cases and not all use cases look alike anymore.

01:10:54: This game of pricing in packaging becomes incredibly important because that's how the market is going to then internalize the value there getting you're... The packaging is like this is how you're consuming it And this is which is different than how you originally priced it.

01:11:14: Priced was like sort of this narrow lens, and then packaging is opening the aperture to have more value constructs.

01:11:23: And pricing often a sub-function on either the founding team or product team but largely starts to come into it in its transitions across products and go market.

01:11:37: there's also that function in middle And greater organizations, a pricing and packaging team is built in a way that really recognizes the importance of their responsibility.

01:11:48: It becomes as strong entity but not always.

01:11:53: So I think discipline of pricing and packing is important.

01:11:57: it's underrepresented at the beginning.

01:11:59: then over time you typically have that team become strategically important a higher level conversation and it's very long game because you also don't want to change pricing too much.

01:12:13: You confuse the marketplace, create inequities.

01:12:17: early customers have one.

01:12:20: pricing is come down.

01:12:22: how do bring them along?

01:12:23: they feel like jammed etc.

01:12:26: so its really important but amazing not given that kind of oxygen.

01:12:32: How do a leader conversation with the potential customer so that we're not hung up on price itself, but have room to talk about everything I thought when it's pricing and packaging.

01:12:44: To present in a way where it feels too high or doesn't feel okay for me?

01:12:53: I'm out!

01:12:56: Certainly what you don't want is lose on price.

01:13:00: You never want to lose on price in the early days because you wanted get a customer experience your product and unit of economics when they're small, but still figuring them out.

01:13:12: So often more flexible on-price than at beginning then realize.

01:13:21: I think we were very smart.

01:13:22: take the axiom of Never Lose On Price.

01:13:25: it was something that i had done.

01:13:27: I saw it the same way with the founders.

01:13:30: And, and i think that tension on that is you think that customer can probably pay a little bit more?

01:13:37: The market will bear it...and like there's this zone of This Is Probably Too Low For Us.

01:13:45: It's Probably A Bad Deal Um..And Then This Is probably A bad deal for customers Like Okay Find That Middle Ground!

01:13:52: You're Just Trying To Create A Sense That Was A Fair Exchange Just Fair And if anything provide more value than you capture meaning give a better price to the market then maybe even think You should just they get the customer con like Feedback loop going.

01:14:09: Get them using product at them tugging on it.

01:14:12: There's a time to optimize priced later.

01:14:15: But I would argue in the beginning, he really don't know what your gross margins are going To be yours trying to figure out your cost base What economies of scales or gonna come in and all that is a function?

01:14:25: Of you know If you do the math like price really matters, but in reality you don't know your costs that well long-term.

01:14:31: So I would say be flexible on price at the beginning and take this signal out of the marketplace.

01:14:39: customers will tell you what's too expensive And some customers are just like whatever Your first prices is to expensive and they're Just.

01:14:46: you know it's The way They negotiate and others Will Tell You Like What?

01:14:50: The Competitive Context Is or Candidly Like Hey i only have X Dollars To Spent take it or leave.

01:14:59: You need to figure out if they're being honest with you and have a decision

01:15:02: make.".

01:15:03: I think that's an art in the beginning, so subscribe don't lose on price!

01:15:10: For everyone interested more deep dive into how to lead sales conversations.

01:15:15: i did an episode with Stevie Case from Vanta and former Twilio because we won't another deep dive here, I wish.

01:15:25: But you will definitely at some point say hey Fabian it's about time.

01:15:30: so therefore just a quick shameless plug of self-promotion for an other episode.

01:15:37: but because

01:15:39: what i

01:15:40: hear quite often from startups let's say your fintech or building in the german market and um You have a potential client And then you hear Hey yeah!

01:15:50: But competitor X um, undercut you by a fifty percent which is absolutely happening.

01:15:57: And then your in the situation and like

01:15:59: huh

01:16:00: should we do that right now to win?

01:16:02: The first customers shouldn't be due dad.

01:16:05: how do I evaluate on such a situation if it's worth taking the risk of under cutting the competitor who was aggressively under cutting myself?

01:16:15: i think there's uh... There's a pivot here Which Is If This Is The Only Product You're Going To Be Competing In You now have feedback on what your competitors are going to do.

01:16:23: And the question is whether you can match it and that's like, That sort of a single product lens and maybe... Maybe that's the company you're building?

01:16:29: You don't have any aspirations or ambitions to go beyond that.

01:16:32: um The market has spoken and you need to find a way To price aggressively to win and that means you need be maniacal about getting Your cost base better than your competitors.

01:16:44: okay thats context.

01:16:45: one Context two I think that this product is the first of many we're going to have and i'm gonna use it as do, base versus your competitors, that is long-term competitively differentiated and good and healthy.

01:17:24: But if you aspire to be a multi product company at... You take the pressure off of your early union economics a little bit.

01:17:31: um..You can't be irresponsible.

01:17:33: but ...you know you're gonna get another bite at the apple?

01:17:36: And maybe the competitors are competing against won't have the ability to expand their profit margin on that customer over time!

01:17:43: That's is that you can be competitive against them and their market, then over time make more margin in areas they cannot compete.

01:17:53: When's the right time to go from single-to-multiproducts?

01:17:57: This was probably one of... Once we get past early easy questions.

01:18:02: this has been a harder question for me because I think it's also one of the ones which are like existentially important And i think about these really two ways.

01:18:11: One Are you going to have more opportunities to just bolt on more features that you might be able to charge for?

01:18:20: That is still probably single product plus feature charges.

01:18:26: You know, think about buying a car and all the add-ons like those are feature add ons.

01:18:30: maybe get more price over time but it's a car versus cars trucks buses Maybe in the context of Tesla Lake launching rockets and or solar panels, however you define the boundaries of those companies today.

01:18:47: I think the first is like do have feature expansion in which case probably getting facile with launching features and charging for them as a good sort-of first step?

01:19:02: What i think about other products that have clear competitors that you're selling to the same install base, Clear Signifier.

01:19:14: there is Same Customer Install Base.

01:19:17: Meaning The Same Customer That Bought The First Product Is Going To Buy The Next One?

01:19:22: That...that is like a single product spending features.

01:19:26: and next level of degree Of Difficulty is going to Same Customer Buying Multiple Products They Would Have Bought From Different Competitors.

01:19:35: And Then There's Like Just like give me some definitions.

01:19:38: The last is different product to a different buyer and the degree of difficulty on that one, it's much higher because the organization doesn't know how to engage with that buyer.

01:19:49: yet an example would be you're selling technology.

01:19:52: executives are now going sell them marketers.

01:19:54: they're very different.

01:19:56: so I think about like degree of difficult being this progression model.

01:20:02: You'll get feedback along the way as you start to sell more features and bolt features on existing products or bring in another product, so they seem buyer.

01:20:10: You learn what the organization is good at an I think about doing it.

01:20:14: that progression very sort of regimented thoughtful And i think he earned a right too.

01:20:21: go beyond selling attaching features same product introducing new New products the same by are two introducing new products to new buyers.

01:20:30: I wouldn't skip steps.

01:20:32: Skipping steps is where you get trouble.

01:20:34: lots of things we covered and i'm currently thinking, Is there a topic that we need to add?

01:20:42: To the discussion or are We doing too much?

01:20:48: do You have A Topic in mind Where like hey this will be a natural Topic to Add Or Do You Think We did a good round trip through everything.

01:21:01: I think you went really deep on a bunch of areas and this interplay between product, go-to market that feels like the center or bullseye for what you were covering?

01:21:12: I'm not sure if would add anything at this point.

01:21:14: Okay

01:21:14: then we're probably aligned.

01:21:15: i just wanted to make sure.

01:21:18: so Chris last question out of curiosity.

01:21:22: it was never or it always took companies very long time to build from like zero to a hundred million and ARR.

01:21:31: And by now there are several examples of many months, one or two years that because all the momentum in the AI space then they did with ten-to-twenty people sometimes less so few more here and there.

01:21:48: What's your thoughts when you see how the approach to go-to market changes for some of the products, and also how the adoption for such products is evolving because it's different from a few years ago.

01:22:04: Yeah I think we talked about this little bit earlier but just to bring you back to surface The customers are in radical experimentation mode where they have refactor their business augmented or improved upon with all the tooling that exists.

01:22:24: So how do you bring a really high quality chat experience to bear around your customers?

01:22:34: You know, watch...you watched How We're All Using Learning To Use.

01:22:37: Then The Models Whether It's ChatGPT Or Gemini Or Claude Or Any Of Them Like it's changing the way we engage With Technology.

01:22:45: And How Do You Bring That Experience Into Your User Set For Your your company, that's thing one.

01:22:51: And think two is how do you augment?

01:22:54: Your existing staff or start cutting your stuff because of the tools?

01:22:59: so like this radical experimentation on their customer engagement side and on how you deliver service through your workforce.

01:23:09: those things are flying at such a pace and coming out these handfuls companies.

01:23:15: they're getting great traction in great adoption.

01:23:18: If you look at cursor, I hear it just all the time how many developers are using this product and getting great value out of.

01:23:26: It gets a function of these cycles on both ends that i just described.

01:23:33: like You have to go faster and adopt these tools And usually transitions take ten twenty years.

01:23:40: This transition is measured in single digit years sometimes months Like we're in this phase where the investment from companies to try to drive more top line or bottom-line improvement is so fast and so extreme that small companies are getting these spins much faster than small companies have had spends before.

01:24:06: And I think they like, The blessing is that you can build a larger revenue company per employee than you have been able to before, much faster.

01:24:18: The downside is those spends can come and they go fast.

01:24:24: so it might get whipsawed until the scaling mechanisms like you have to be able deploy highly scaled tooling in a high-scale leverage teams fast.

01:24:38: that just brings risk.

01:24:42: I don't mean risk in bad way Brings a certain amount of.

01:24:46: you have to be really careful in how you do it.

01:24:49: The reward.

01:24:49: rewards are great.

01:24:50: You can have a thirty person company doing gosh What like?

01:24:54: A hundred million dollars.

01:24:55: now I've heard these, you know How many people are really at cursor and they're close to two hundred million.

01:25:01: so well Yeah something about yeah.

01:25:03: So i don't think its thirty employees anymore but It's not it's on thousands.

01:25:10: I think the spends are coming into marketplace really fast by large companies, and we're going through this radical refactoring of how work is done.

01:25:19: And it's a moment in time that...I've not seen anything else like this in my lifetime, but i'm sure they'll see another one

01:25:25: Chris?

01:25:27: I leave the audience with that because there something to think about your LinkedIn below.

01:25:41: And I will think about topics for which i can invite you again, because I really enjoyed it.

01:25:47: so the wall is in my ballpark now but thank you so much for taking the time.

01:25:52: It's been such a pleasure and super insightful!

01:25:56: And I'll find another topic.

01:25:58: then we'll figure out if we do it remote again or If We Do It In Person Somewhere in California.

01:26:06: Thank You So Much.