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PODCAST 24: Building a Tier 1 SAAS Company From The Investor Perspective

Sam Jacobs

September 11th, 2018

 

A 1×1 interview with Tomasz Tunguz, legendary VC and SaaS expert, to discuss the key operational paradigms leading to SaaS excellence.

Tomasz made a name for himself through deep data-driven analysis of the best SaaS businesses and helping the SaaS community unpack the key drivers of growth across different operational frameworks.

 If you missed episode 23, check it out here: PODCAST 23: Optimizing Sales Productivity to Drive Exponential Growth

What You’ll Learn

  • The difference between good and great SaaS businesses
  • The optimal pricing strategy to IPO
  • The impact of sales and marketing on B2B execution
  • Driving constructive tension between sales and marketing
  • The right mentality to be a great venture capitalist

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Show Agenda and Timestamps

  1. Show Introduction [0:08]
  2. About Tomasz Tunguz: An Introduction [3:07]
  3. How Tomasz Picks The Right Ventures [22:04]
  4. What Data To Look At When You’re In Series A Investment [26:02]
  5. A Good VP of Sales Can Be Measured By Uniform Quota Attainment [29:06]
  6. The Tension Between Sales And Marketing Needs To Exist [33:38]
  7. There Is No Optimal Deal Size Or Customer Segment [35:30]

Sales Hacker Podcast — Sponsored by Aircall and Outreach

Sam Jacobs: Hi folks, welcome to the SalesnHacker podcast. This week is yet another amazing episode and we’ve got Tomasz Tunguz. Tomasz is a managing director at Redpoint Ventures, really well known in the SaaS world for a lot of the data and analysis he’s done, and for benchmarking great companies. He’s also a wonderful person.

I want to talk about our sponsors. The first is Aircall. They are a phone system, designed for the modern sales team. They seamlessly integrate right into your CRM, whether that’s Salesforce, Hubspot, or something else. They eliminate all data entry for your reps, and give you much greater visibility into your team’s performance through advanced reporting.

Our second sponsor is Outreach.io. They’re the leading sales engagement platform. Outreach triples the productivity of sales teams, empowers them to drive predictable and measurable revenue growth by prioritizing the right activities, and scaling customer engagement with intelligent automation. Outreach makes customer-facing teams more effective, and improves this ability into what really drives results.

Thanks so much for listening, and here is our episode with Tomasz Tunguz.

About Tomasz Tunguz: An Introduction

Sam Jacobs: Hey everybody, and welcome to the Sales Hacker podcast. We are incredibly excited to have one of the celebrities of the SaaS world, but also somebody that has positioned himself, and built his career as a true thought leader when it comes to recurring revenue businesses.

I’m speaking, of course, of Tomasz Tunguz. Tomasz is a managing director at Redpoint Ventures. He invests in early-stage software and infrastructure companies.

Welcome Tomasz! We’re super excited to have you.

Tomasz Tunguz: I’m thrilled to be here, thanks for inviting me on.

Sam Jacobs: Tell us, how did you get here? How did you get into VC?

Tomasz Tunguz: My dad and I started a company together. He was the one doing the engineering and I was the one doing the selling. My first three or four sales were in the 20K to 50K range. I was basically bitten by the bug of startups.

Then I went to work at Google. I became an account manager for some of the large social networks. Google had this view of the world that was incredible because what we were doing in terms of trawling the internet, and the power of it was just awesome. That’s when I first fell in love with data.

How Tomasz Picks The Right Ventures

Sam Jacobs: A lot of my job, which is a lot of your job, is picking the right company. How did you figure that out in the first couple of years?

Tomasz Tunguz: This is why venture is an apprenticeship business. It’s all so nuanced. I have this spreadsheet that I use to fill out every time I meet a company. I grade different companies on different metrics and attributes. We’re a firm that really focuses on team first, and the people, because we believe that people are the ones that build businesses, and people are the ones that shape markets, rather than the other way around. That’s one.

The second thing that we look for is, if it works, can it be enormous and category defining? Our business model is to invest in about 30 to 40 companies per fund and have something like two or three of those companies generate all of the returns that we need in order to sell or in order to raise the next fund.

What Data To Look At When You’re In Series A Of Investment

Sam Jacobs: What data points can you look  at an early stage that are indicative of something good going on?

Tomasz Tunguz: There are very few data points at the Series A that are correlated to success. At the seed in Series A, what you’re really looking for, is exceptional team market fit.

The second thing is an exceptional product. Like a third of the enterprise companies that we invest in have no revenue when we invest in them and the vast majority of them have less than a $100,000 in monthly recurring revenue when we invest.

Sam Jacobs: Do you have any frame, or is there a stage that is an indicator of whether or not the company is going to be successful?

Tomasz Tunguz The only one that you can say is $100 million in revenue growing at 70 percent a year. That’s when you can go public. We’ve seen companies grow very quickly like 1, 7, 21, 40 [million], and then flatlineor fall.

A Good VP of Sales Can Be Measured By Uniform Quota Attainment

Sam Jacobs: What is a great VP of Sales or CRO? Like what are the differences in the boardroom that you noticed between the revenue leaders that you think are really first rate and those that that are not as good?

Tomasz Tunguz: One of the data sets I love to look at is quota attainment by rep. And in a lot of companies you see a parallel distribution, where one or two of the reps is just crushing quota. I think if you can see a uniform distribution across account executive performance, then you know you have a really great leader. If you have that distribution where two people are carrying the team, you’re introducing a lot of risk. You need to have some confidence in the consistency of quota attainment, and it’s the sales leaders who bears that that responsibility.

The Tension Between Sales And Marketing Needs To Exist

Sam Jacobs: One thing you mentioned was that the strongest structures are those built-in tension. What did you mean by that?

Tomasz Tunguz: If you think about the Golden Gate Bridge, the reason that that bridge is so strong is because there is a cable that’s attached to both sides that’s pulling the bridge on each side. I believe management teams, really great management teams, are built exactly the same way. There’s this tension that’s always existed between sales and marketing–that’s really important, and should remain. And there’s a tension that should exist between sales and product, and that’s really important. It’s only because you have those tensions, and the fact that each of those teams can challenge the other, that you can really achieve really terrific things. That’s what gets people to push each other.

There Is No Optimal Deal Size Or Customer Segment

Sam Jacobs: You did a lot of research on deal size and market segment, and you concluded that there is no conclusion. Tell us a little bit about that work because it’s super interesting that there’s no one way to go to market.

Tomasz Tunguz: I’ve always looked for what is the optimal deal size? What is the optimal customer segment? And I’ve cut the data as many different ways as I could have imagined, and each time I can never get to a statistically significant answer that one is better than the other.

Even the sizes of companies–you have enormous companies that sell to the SMB and enormous companies that sell to the mid market and the enterprise, and the capital efficiency for each of those businesses is close to the same. The ultimate conclusion is you can build a business selling to any sized customer. You just have to make sure that your go to market motion is optimized for that segment.

Sam Jacobs: Wonderful. Tomasz, thanks so much for joining the Sales Hacker podcast and congrats on all your success. It’s wonderful to see.

Tomasz Tunguz: It’s a privilege to be here. Thanks so much again for inviting me, Sam.

Sam’s Corner

Hello friends. We’re here with Sam’s Corner.

Tomasz Tunguz, a really exceptional human and a great investor, self taught, self built, who started his career as a salesperson down in Chile. So, what do we take from Tomasz? Tomasz is a voracious reader. He’s a learner. He breaks down the financial statements of publicly traded companies in his world (SaaS).

I don’t know if you know, but if you don’t, the public financial statements of all of these companies are all online. They’re all free. You can read their 10K, you can read their various filings, and they’re obligated to list who are their competitors, what’s their go to market strategy, what do they perceive their major risks to be. That’s all free information, so make use of competitive intelligence that’s out there.

This has been Sam’s Corner, thanks for listening.

Don’t Miss Episode 25

To check out the show notes, see upcoming guests, and play more episodes from our incredible lineup of sales leader’s visit www.saleshacker.com/podcast-subscribe.

You’ll find us on  iTunes or Stitcher. New episodes tend to come out every Tuesday, and if you enjoyed this episode, please share with your peers on Linkedin, Twitter, or elsewhere. Once again, big shout out to our sponsors,  Outreach and Aircall. I will see you next time.

This is a sponsored guest post from a Sales Hacker partner.

About the author

Sam Jacobs

Sam Jacobs is the Founder of Aqueduct Revenue Advisors and the New York Revenue Collective and regarded as one of the top start-up CROs in the tech community. He has has over 15 years of experience scaling companies from post-revenue to ~$300M, has helped raise over $400M in institutional capital, and has helped companies of all sizes achieve an average annualized revenue growth rate of 48% over the last 15 years.

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