a16z Podcast: Product-Market SALES Fit (What Comes First?)

0:00:04 Hi, everyone. Welcome to the A6 and Z podcast. I’m Sonal.
0:00:08 Today’s episode continues our Enterprise Go-To-Market podcast series.
0:00:12 And the theme of this episode is for founders and product managers
0:00:15 to consider the tight relationship between product and go-to-market,
0:00:18 one informing the other in both directions.
0:00:22 What are the key milestones that go into both and in different phases of company building,
0:00:25 especially pre-to-post product-market fit?
0:00:31 The conversation features special guest Jyoti Bunsell, founder and founding CEO of AppDynamics.
0:00:34 He’s also a co-founder at Unusual Ventures and co-founder of Harness.
0:00:37 Joining me to interview Bunsell, we have General Partner Peter Levine,
0:00:41 who also put out a series of 16 short sales videos for founders,
0:00:45 which you can find at asixnz.com/16sales.
0:00:49 And then we have A6 and Z Enterprise Deal Team Partner Sathish Thaluri,
0:00:52 since he too came from AppDynamics, where he was last a senior director
0:00:55 of product and growth operations pre-sale to post-sale.
0:00:59 Speaking of, we go beyond the typical discussion of product-market fit
0:01:02 into the concept of product-market sales fit,
0:01:05 and what that means for product design, to services,
0:01:09 to pricing and packaging, to product management, and more.
0:01:14 But first, we quickly begin with the fundamental shift in mindset for technical founders.
0:01:17 The first voice you’ll hear is Jyoti’s, followed by Sathish’s,
0:01:20 talking about the initial insight behind AppDynamics,
0:01:26 which was acquired by Cisco last year for $3.7 billion the night before it was set to go public.
0:01:28 I was working as an engineer in a company,
0:01:32 and this was before the phrase you guys coined on software is eating the world.
0:01:33 This was 2008, right?
0:01:36 But it was clear that software is eating the world, right?
0:01:39 And to me, it’s like, okay, if everything is going to be software,
0:01:40 something goes wrong in software,
0:01:43 someone needs good tools to troubleshoot and fix it.
0:01:45 So that was really the insight.
0:01:51 AppDynamics was building monitoring and troubleshooting solutions for complex software apps.
0:01:56 So if you have an online banking and something goes wrong in your online banking,
0:01:59 you will use AppDynamics to figure out the root cause and fix it.
0:02:02 Or if Delta reservation systems are down and everyone is stuck on the airport,
0:02:06 someone needs to find tools to troubleshoot what’s the root cause of the problem and fix it.
0:02:09 That’s what AppDynamics built, those troubleshooting tools.
0:02:11 So now it’s like, when I jumped into it, I didn’t know anything.
0:02:14 I didn’t know how to raise capital.
0:02:16 I didn’t recruit anyone before AppDynamics.
0:02:18 So you had to go and figure out that out.
0:02:21 I didn’t know how to have lots of customer conversations
0:02:23 or even find customers to talk to.
0:02:26 At least during the pre-product market fit,
0:02:28 a lot of engineers, even including myself,
0:02:31 we get obsessed with the technology.
0:02:32 I’m not so much about the user.
0:02:36 At the end of the day, if the user adoption is not there, it’s no good.
0:02:38 I mean, there’s no market without the user.
0:02:38 Exactly.
0:02:40 You got the product side, but not the market.
0:02:42 I say a lot of engineers to be honest,
0:02:46 struggling about understanding that customer and user adoption
0:02:48 and the engagement metrics.
0:02:52 We thought that good UI/UX and really beat the open-source strategy
0:02:54 or the closed-source strategy doesn’t matter.
0:02:59 But user adoption is what should be driving the pre-product market fit.
0:03:02 Now, the challenges completely change after you have your initial product market fit.
0:03:06 They become all about sales and learning sales and scaling sales.
0:03:10 It’s almost like the companies go through the journey, right?
0:03:12 The pre-product market fit, the challenges are different.
0:03:15 Then after a product market fit,
0:03:18 the challenge becomes about selling and scaling sales organizations.
0:03:22 You’re saying on one hand that you have to sell after product market fit.
0:03:24 But on the other hand, I’ve heard that for a lot of enterprise businesses,
0:03:28 part of the act of selling is finding those users in the first place.
0:03:29 It’s a bit of a chicken-egg thing.
0:03:32 Well, a lot of us start our careers as engineers.
0:03:39 And a lot of our construction of a business is around the features
0:03:40 and around what the product does.
0:03:42 It’s all technically oriented, right?
0:03:45 Because what we often say is, “Okay, well, if we have these features,
0:03:47 then people will come and buy it.”
0:03:53 And I find that some of the go-to-market is an afterthought once you’ve built something.
0:03:55 And I would argue in today’s day and age,
0:04:00 if you’re going after small businesses versus large enterprises
0:04:03 or self-serve or whatever,
0:04:07 thinking about that up front along with the product requirements
0:04:11 and technical requirements may be a good thing to go and do.
0:04:18 Like, I think to sequentially order those probably results in an efficiency issue, right?
0:04:21 We go build something and, “Oh, who knows how to go sell this?”
0:04:27 And all of that might it be useful to say to technical entrepreneurs,
0:04:31 “In order to do this, you got to go figure out the go-to-market as well
0:04:35 as the product features and don’t eliminate that or push that off.”
0:04:36 I would totally agree.
0:04:42 The way I mentally think of this is two phases of product-market fit.
0:04:46 The phase one is really even figuring out where your target market is.
0:04:49 So for that one, you really want to start broad and then segment.
0:04:56 Like, if you don’t know where would your idea or your product fit the most?
0:05:00 Is it large enterprise? Is it SMB? Is it financial services?
0:05:04 Then I would just go and interview all of them and not narrow yet
0:05:06 and start building the product which is a little bit wider.
0:05:09 And how did you guys come to that?
0:05:10 Where did you start?
0:05:13 You had this wide aperture and then it narrowed to what was the first thing.
0:05:16 You know, to me it was that people are building this complex software apps
0:05:17 and they need to monitor them well.
0:05:20 And I had the technology idea that if you can instrument the code
0:05:23 and trace everything, then it would be a good product.
0:05:25 But I didn’t know who would buy it.
0:05:27 I started like, okay, let me go and broaden it.
0:05:30 Let me go and find people in larger enterprises to talk to.
0:05:32 Let me go and find people in startups to talk to.
0:05:35 Let me go and find people in mid-sized companies to talk to
0:05:38 and see where it sticks the most or where the most pain is.
0:05:41 And what I found was, okay, the most pain is where
0:05:43 they are these kind of medium to large companies
0:05:46 which are building these complex distributed Java applications.
0:05:48 So let me now focus more on that.
0:05:52 So I started broad and then we started narrowing down a bit of the focus.
0:05:56 And but after that, once you identify it, then it’s very important
0:06:00 that you marry the go-to-market model in your product thinking.
0:06:03 Because these days it’s all very tightly coupled together.
0:06:05 You don’t have like, you know, sales is different,
0:06:07 then marketing is different, then product is different,
0:06:09 then all of it’s all together in many ways, right?
0:06:12 So if you have an open source model or you have a freemium model
0:06:15 or if you have a, you know, is it SaaS, is it on-premise,
0:06:18 is it hybrid of it, is it going to be land and expand
0:06:21 and you have to engineer your product with that in mind.
0:06:24 Right. The features of the product almost have to inherit
0:06:28 part of the go-to-market within the product itself, right?
0:06:30 And a lot of product design, I think,
0:06:34 reflect the go-to-market attributes that need to be considered.
0:06:36 So in the epidemics, I used to say like,
0:06:39 it’s a little bit misleading to just call it product-market fit.
0:06:42 We should call it product-market sales fit.
0:06:43 Oh, I love that.
0:06:45 You know, it’s like, it’s like, have we found the right,
0:06:48 you know, there’s a right market and you have the right product
0:06:51 and we have the right sales or go-to-market strategy.
0:06:52 Right. That works for it.
0:06:54 So when you said two phases of product-market fit,
0:06:56 the first one was where, like the,
0:06:58 either the small, big enterprise, different domain or industry
0:07:01 and the second one was the sales motion.
0:07:03 So it’s, the thing of phase one is like, you know,
0:07:06 where is the most pain and where your product
0:07:09 or your unique approach or whatever it is
0:07:12 solves the pain in a way that people will pay for.
0:07:14 And you’re also validating like your technology,
0:07:14 does it really work?
0:07:16 Can you really build the product?
0:07:17 Does it really solve the pain?
0:07:19 And then you have to figure out like,
0:07:21 what is the sales strategy or go-to-market strategy
0:07:23 that will work and scale?
0:07:25 And does your product support that?
0:07:27 Because if your product doesn’t support it,
0:07:28 you know, many times people are like,
0:07:31 you know, we’re going to build a freemium strategy.
0:07:33 You know, but the problem is if your product is too complex,
0:07:34 freemium doesn’t work.
0:07:36 But just to drive this point home,
0:07:40 which I completely agree with, the product,
0:07:43 the features of the product need to inherit
0:07:46 part of the sales motion itself, right?
0:07:50 And that if you’re going after a certain motion
0:07:54 or certain customer, the product needs to be reflective of that.
0:07:55 And I think we often miss there.
0:07:59 Like we build a product and even if we define a go-to-market,
0:08:02 the product features or the interface,
0:08:07 the design may be completely misaligned
0:08:09 with the target audience or target go-to-market,
0:08:10 I should say.
0:08:14 And some of it you can also break into say revenue goals.
0:08:17 Like, you know, I would roughly think getting to your zero
0:08:19 to the first million ARR,
0:08:21 you’re in that phase one of product market fit.
0:08:23 – ARR is the annual recurring revenue.
0:08:24 – Annual recurring revenue, which is like, you know,
0:08:27 do you have a product someone will buy
0:08:28 and it’s solving some pain?
0:08:32 Then you’re like, you know, a million to the 10 million in revenue.
0:08:35 That’s where you’re retreating on the go-to-market strategy
0:08:37 and getting the product to be aligned with that.
0:08:39 And if you get that right, that like at 10 million,
0:08:40 you should be there like, you know,
0:08:44 you got the product market and sales fit as well.
0:08:47 And then you can, you know, press, you know,
0:08:51 the guests and go from 10 to 100 from there or like, you know,
0:08:55 but you got to get that iteration on the sales fit to it.
0:08:56 – So I have a question for you here.
0:08:58 So in your case, you had a product
0:09:00 where you knew the tool was solving an existing problem.
0:09:02 Does that calculus change if it’s a,
0:09:05 you’re creating a category and you’re going into a market
0:09:08 where quote, the problem does not already exist,
0:09:11 because then you don’t actually have the ability to necessarily
0:09:14 know where or how to figure out the sales motion yet.
0:09:16 Or is that not true?
0:09:18 Because I think a lot of founders might argue that,
0:09:20 well, why can’t I be like Steve Jobs and sort of invent,
0:09:23 like create the product that people all go to?
0:09:24 Like what would you say to that?
0:09:27 – Well, you’re always creating, you know,
0:09:28 either you’re solving a problem
0:09:31 significantly better than others have done in the past.
0:09:34 And the dimension of what does significantly mean
0:09:35 could be different.
0:09:37 It could be your 10x more scalable,
0:09:39 your 10x more easier, your 10x more cheaper,
0:09:39 whatever it is, right?
0:09:41 – Right, I’ll 10x better.
0:09:43 – It has to be 10x better in some dimension.
0:09:45 So in an existing problem,
0:09:47 or if it’s a new problem that’s emerging,
0:09:48 then it’s, you know, you’ll, you’ll,
0:09:51 you’ll still have the problem has to be there.
0:09:53 Either there’s problem with existing vendors,
0:09:56 or there’s problem because there is no solution there,
0:09:57 but it has to be there.
0:09:58 Otherwise you don’t have anything to sell.
0:10:02 – And I think in enterprise more than consumer,
0:10:04 there’s a budget, there’s a certain budget dollar
0:10:06 that you’re going to go after in enterprise,
0:10:09 maybe it comes out of the development budget,
0:10:12 it comes out of engineering, marketing, sales,
0:10:16 there’s something for which you can at least start to frame
0:10:19 this new thing, new market, whatever.
0:10:22 Like one of the questions to ask is,
0:10:24 who’s the potential buyer for this?
0:10:26 Even if it’s a totally new market, right?
0:10:29 But let’s call it enterprise products somewhere,
0:10:30 doesn’t exist before.
0:10:34 Still, who’s the buyer and what budget does it come out of?
0:10:37 And a lot of products actually where there isn’t a market yet
0:10:39 may span multiple buyers, in fact,
0:10:42 may come from multiple different departments
0:10:44 and span budgets and you need to think about that.
0:10:47 Like, okay, I’m creating this new market,
0:10:51 but perhaps the buying motion and what the customer
0:10:55 is used to actually doing from a buying behavior
0:10:57 is so complicated, it’s never going to happen.
0:11:00 – Yeah, even for the product managers or the founders,
0:11:03 it always helps to do a sales kind of play,
0:11:05 wherein how exactly you are going to sell
0:11:09 and who is the actual buyer and who is the actual user?
0:11:11 What are you going to say to the user?
0:11:13 What pain points you are going to solve?
0:11:17 And how exactly the user is going to use your product?
0:11:19 I think working with the salespeople
0:11:22 who are actually on the front lines to go and sell
0:11:25 for the engineers and the product managers,
0:11:26 it really helps.
0:11:28 And in fact, at your company,
0:11:31 you made a lot of engineers to go on those calls
0:11:35 to literally understand who exactly is buying that product,
0:11:36 how much is he going to pay.
0:11:39 And for that, what exactly you need to build.
0:11:41 So that connection for the engineers
0:11:44 to go on those sales calls really helped them
0:11:46 to understand that sales motion
0:11:48 and how to incorporate into that product.
0:11:50 That’s one of the best practices I allowed.
0:11:53 So that’s how engineers always got to understand
0:11:54 that sales motion.
0:11:56 – We had that strong belief is just that
0:12:00 we have to break the barriers between engineers and customers.
0:12:04 In the startups I worked at before AppDynamics as an engineer,
0:12:06 people will say engineers don’t know how to talk to customers.
0:12:09 So let’s keep them away from customers.
0:12:11 And so we are selling to engineers,
0:12:12 like our products are technical.
0:12:15 So that just doesn’t make any sense to me.
0:12:17 In the early days of finding the business case,
0:12:20 the finding where the budget will come from,
0:12:23 one of the questions that we always asked,
0:12:26 my favorite question to ask to any customer was,
0:12:28 how would you make the business case to your boss to buy this?
0:12:31 And that’s when you would start hearing like,
0:12:33 this is my business case like in every time we have outage,
0:12:39 we normally spending six engineers in a room for five hours
0:12:41 to try to figure this out with you guys.
0:12:44 I can reduce it down to one engineer for 15 minutes.
0:12:46 And that’s my business case.
0:12:48 And once you start hearing the business case,
0:12:50 then you can know that there is a business case.
0:12:53 You can monetize it and you can convert into dollars at some point.
0:12:55 – How do you navigate that though?
0:12:56 When you have multiple budgets
0:12:58 and multiple decision makers inside the enterprise,
0:13:01 different groups or departments have different problems
0:13:02 or itches that you’re scratching?
0:13:05 And how do you sort of up level it so that you’re selling
0:13:06 into getting the big bucks
0:13:08 and not just sort of the incremental budget?
0:13:11 – I mean, I would say it all depends again on this,
0:13:14 you know, product market sales strategy.
0:13:18 A lot of companies that start with bottoms up
0:13:20 only go after an individual user.
0:13:24 And then they get enough use on individual users
0:13:27 and propagation from the bottoms up.
0:13:28 I call that self-serve.
0:13:30 So there’s no complexity there.
0:13:34 There’s no, you know, multiple buying centers or whatever.
0:13:35 So it’s not a foregone conclusion
0:13:38 that you just, that that, you know, is the way to go.
0:13:41 Now, after enough people are using the product,
0:13:43 then you can come in with tops down and say,
0:13:45 “Hey, did you know like everyone in your organization
0:13:47 is already using the product?
0:13:48 You ought to have a corporate-wide license
0:13:50 so we can private support and all of that.”
0:13:53 So that would be an example of bottoms up
0:13:55 and then coming in on tops down.
0:13:57 Many other products that were designed
0:13:59 to be tops down as a starting point
0:14:02 because it may go across departments,
0:14:05 it may be more complicated.
0:14:07 There’s security needs, whatever,
0:14:09 where a bottoms up design just doesn’t work, right?
0:14:13 In which case then you probably need to start
0:14:16 with a more traditional, let’s say,
0:14:17 a direct sales organization.
0:14:20 It could be an inside sales organization
0:14:22 or direct calling in and actually getting the customer.
0:14:26 I mean, complex sales often requires multiple buyers,
0:14:29 multiple parts of the organization to come together
0:14:35 and that’s a skill set that a well-honed sales organization
0:14:36 will know how to do.
0:14:38 How did you guys, what was your sales motion at AppDynamics?
0:14:41 So ours was a combination of both.
0:14:44 We, you know, in AppDynamics, you call it the sandwich strategy.
0:14:44 The sandwich strategy.
0:14:47 You go from the bottom, you go from the top,
0:14:49 you’ll go to the developers and DevOps engineers directly.
0:14:52 It was done through a freemium kind of model
0:14:53 so that they will start for free
0:14:56 and they can use a light version of our product for free.
0:14:57 And then we will start going from the top,
0:15:00 where we will create air cover
0:15:02 and when we have multiple users in an organization,
0:15:03 then we’ll go and sell them more.
0:15:05 So really the sales motion was built on,
0:15:08 the end users can start for free.
0:15:10 Then we will have, sell them some licenses,
0:15:11 we call it land and expand.
0:15:13 The land deals, which are like, say,
0:15:16 $20,000, $30,000, $50,000 deal.
0:15:17 On phone, we can sell that.
0:15:19 And then we’ll expand into like half a million,
0:15:21 million, $2 million.
0:15:22 Now these days when $10 million deals,
0:15:25 that you need traditional enterprise sales people.
0:15:28 So inside sales versus field sales basically in that context?
0:15:31 Yes, but in most of these companies today,
0:15:32 you would probably need both.
0:15:32 Okay.
0:15:36 So it depends on, if the model is only top down,
0:15:37 you probably need only field sales
0:15:39 and you’re selling into large enterprises.
0:15:41 But if a model is this kind of a land and expand,
0:15:43 you want to do the land through inside sales
0:15:47 and you want to do the large, the expense with field sales.
0:15:49 Yeah, and offline, we are seeing scenarios
0:15:51 in which once you go to the top,
0:15:53 and if there are big enterprises,
0:15:56 services has becoming a very important component of it.
0:15:59 To be honest, it bottoms up a developer adoption,
0:16:02 great land, but once you expand and once you get
0:16:06 into multiple portfolios and into complex integrations,
0:16:10 services is essential component of the enterprise sales.
0:16:11 So something that take away on services,
0:16:13 because I’ve always heard and disillusioned me of this,
0:16:14 is that this is not correct,
0:16:17 that services are the things that reduce your margin.
0:16:19 So you don’t want to have too many services
0:16:20 or how do you balance that one?
0:16:24 It reduces your margin is from the perspective of you as a vendor.
0:16:26 But a thing from the perspective of a customer,
0:16:28 like if they spend a million dollars on your product
0:16:30 and they’re not getting the value of a million dollars
0:16:32 because they didn’t have enough,
0:16:34 the right people in place to implement your product,
0:16:37 that’s not good for them and eventually it’s not good for you
0:16:38 because you’re building a,
0:16:40 likely a recurring revenue business in some kind, right?
0:16:43 When we started, we were like, we’re not going to sell services,
0:16:44 not from a margin perspective,
0:16:46 because we wanted our product to be easy enough
0:16:47 that no one needs any services.
0:16:50 And that was true for a long period.
0:16:53 Actually, for the first four years, we had zero services.
0:16:55 And then we started getting into larger and larger enterprises
0:16:56 and larger and larger deals
0:16:58 where people were spending millions of dollars with us.
0:16:59 Yeah, you want to save that money.
0:17:03 Yes, and we figured out, if they don’t buy any services,
0:17:05 sometimes no fault of our product,
0:17:07 they just don’t get that option that we want.
0:17:10 So we were like, yes, too much services,
0:17:12 then the margins are low, right?
0:17:15 But we found the right balance was about 10 to 15%.
0:17:17 So if in our products, if people are buying,
0:17:20 let’s say they’re spending a million dollars with us on the software
0:17:24 and they spend like $100,000 or 10 to 15% on it,
0:17:27 on services, their adoption is much better and much faster.
0:17:29 So ideally, you actually make more money on the upsells
0:17:31 and cross-sells and more feature expansion
0:17:33 based off that 10 to 15%.
0:17:36 Eventually, if your users are getting an option
0:17:38 and happy with the product, the money will come.
0:17:40 The margins will come, right?
0:17:43 So you have to figure out if people are getting value or adoption or not.
0:17:45 Margin’s will come, I like that phrase.
0:17:50 If you think about in that example, let’s say services in that case
0:17:56 leads the buyer to purchase a million dollars of license,
0:18:00 the blended margin on that is extremely high,
0:18:05 much higher than it would be on a $20,000 no services deal, right?
0:18:08 So while services from a unit economic standpoint may be,
0:18:12 you know, a little more expensive from a margin standpoint,
0:18:16 if it drives very large deals with software margins,
0:18:18 you come out way ahead.
0:18:20 So you have to think about blended margin
0:18:23 and the idea that services are often a leader
0:18:29 into a company buying the million dollar, two million dollar license.
0:18:31 It’s just expected as part of that.
0:18:34 And the renewals, like, you know, the year two, year three,
0:18:37 year four renewal offer, like, so if you spend, if, you know,
0:18:39 for the first year because you sold services,
0:18:40 your margin may be lower.
0:18:43 But the, because of services, that option is higher.
0:18:45 So your chances of renewing in year two, year three,
0:18:46 year four, year five are much higher.
0:18:48 So the margins for those will go up.
0:18:51 At the end of the day, adoption is what it counts for a product, right?
0:18:52 And services help.
0:18:54 And also keeping aside the financial aspect,
0:18:59 even from a product aspect, it’s good in the sense that we hate shelfware.
0:19:02 What good is it if some enterprise bought one million?
0:19:03 And if they’re not using it.
0:19:05 Just sitting on the shelf, right?
0:19:07 It’s really bad from a product standpoint.
0:19:12 There are lots of these minor features which are custom.
0:19:14 They, they don’t fit in the product.
0:19:16 They actually fit well for the services.
0:19:20 So that’s why having a good combination of what’s going into the product
0:19:22 versus what should we be left in the services.
0:19:26 That’s a good play for the product manager or the CEO to make that call.
0:19:28 So that the product adoption goes well.
0:19:31 Adoption and the product services isn’t necessary.
0:19:33 It goes hand in hand.
0:19:34 That’s like, I’m really glad you’re about that up
0:19:37 because I want to segue to talking about the company building side of this.
0:19:39 So you’re describing the sales motion to customers
0:19:42 and the product market fit, pre-product market,
0:19:44 pre-product market sales fit and post.
0:19:47 Now, how, let’s spend the rest of the time
0:19:49 connecting it back to what happens inside the company.
0:19:50 So you’re describing the product.
0:19:52 How does this affect the product roadmap?
0:19:54 Like when you get all this feedback from customers
0:19:57 and you have the sales motion in place,
0:20:00 how does this then drive back inside your company
0:20:02 to further developing more features on the product,
0:20:04 making those balancing decisions
0:20:07 for what goes into the core, to what goes into the custom,
0:20:09 to what goes into the next iteration.
0:20:11 Kind of tell us about those trade-offs.
0:20:15 It depends on a different stage of the company.
0:20:18 When you’re in the very, very early stage of building the V1 product,
0:20:20 you really want to use the customer feedback
0:20:23 to figure out what you want to build that will sell.
0:20:26 That will get your first 10 customers, first 20 customers or so.
0:20:28 And you have to listen to customers.
0:20:30 That’s the product market fit exercise,
0:20:32 the customer validation exercise and all that, right?
0:20:34 Are they paying for this thing too?
0:20:35 Yes, and once you have customers,
0:20:42 like how you prioritize becomes what you’re hearing from customers,
0:20:43 what will it take them to be successful
0:20:46 and adopt the product more and buy the product more.
0:20:49 And you want to make sure that as the product teams,
0:20:51 ears are open, listening to customers,
0:20:53 listening to customer support, customer success.
0:20:54 They are watching the tickets.
0:20:57 They are watching what’s working, what’s not working.
0:21:01 Then sales is trying to expand and get more customers.
0:21:02 So you have to work with them as well
0:21:04 because they are competitive pressures.
0:21:08 You have to catch up to competitors on some features sometimes.
0:21:10 And so you have to make sure you’re winning enough in the market.
0:21:13 You can get enough revenue and you prioritize that also.
0:21:14 And but then there’s the third part,
0:21:16 which is you also want to keep expanding your product,
0:21:19 which are things that your current customers are not asking for,
0:21:24 but you need them for expanding your addressable market for customers, right?
0:21:28 And that’s where it’s from a product perspective.
0:21:29 It’s a balance of those three things.
0:21:34 Right? It’s what do we need to win more revenue today?
0:21:37 What do we need to keep our customers happy?
0:21:40 And what do we need to win more revenue two years from now?
0:21:43 So win and keep now to what do you need in the future to win?
0:21:46 Yes. And the rule of thumb that I followed there
0:21:47 was two-third of our engineering investment
0:21:50 should go with our existing TAM.
0:21:51 The core base.
0:21:53 And the one-third of our engineering investment
0:21:55 we should keep putting on expanding our TAM always.
0:21:57 So our total addressable market.
0:21:59 Right? So when we started with like our initial V1 product
0:22:02 was application monitoring for Java applications.
0:22:03 And that was our TAM.
0:22:06 Once we had that, we’ll start putting one-third of our engineering
0:22:09 on expanding it to the next adjacent market,
0:22:11 which is application monitoring for dotnet applications.
0:22:16 After a year, that became part, our product became Java and dotnet.
0:22:18 Now we look at what is the next adjacent market
0:22:20 where I can put another one-third of my engineering.
0:22:23 And then we kept doing it systematically for seven, eight years
0:22:26 and we just kept expanding our TAM.
0:22:27 So the two-third, one-third rule.
0:22:30 Yeah. But the interesting aspect even during that expansion
0:22:35 is that the target buyer, because he already,
0:22:38 we had an existing sales motion target buyer and user,
0:22:41 we didn’t change that drastically
0:22:44 because the sales motion is already oriented towards it.
0:22:47 So it’s like those agencies be dotnet
0:22:49 or the end user monitoring and so on and so forth.
0:22:52 Still, it’s targeting the same buyer and user
0:22:56 so that you can leverage your existing go-to-market sales motion.
0:23:00 That didn’t cause too much of distractions on the go-to-market side
0:23:03 that really helped expand your product portfolio.
0:23:06 But at the same time, leverage your existing sales motion
0:23:08 to go and attack and expand the market.
0:23:11 So understanding that if you change both product
0:23:13 and also your sales motion suddenly,
0:23:16 then it’s almost like again building from scratch
0:23:18 and that causes lots of disruptions in the company.
0:23:20 That’s exactly right.
0:23:23 I mean, if I go back to the sales videos that I did,
0:23:27 there was a concept in there called the sales learning curve,
0:23:30 which says that at different stages
0:23:32 of building out a sales organization,
0:23:34 there’s different people you need.
0:23:37 When a new product comes out inside a company,
0:23:41 you often need to start a new sales learning curve.
0:23:44 It’s not just the old one that you follow,
0:23:46 but you may have a new customer,
0:23:49 it may be a new market motion, whatever.
0:23:52 And the old organization may not be kept
0:23:54 because they’re at a mature level
0:23:56 of selling an existing product.
0:23:58 And now you start out with a different product.
0:24:01 You may have to have the evangelist sales person
0:24:05 start that new sales motion
0:24:08 and not have the bigger sales organization
0:24:10 take on that product in a new market.
0:24:12 They may not be able to do it.
0:24:14 And a lot of companies fail at that because they assume
0:24:18 just because they have scaled with one product line
0:24:20 that they can introduce another one,
0:24:22 let’s say for a completely different market in there,
0:24:24 and nothing happens, right?
0:24:28 And we learned that at AppDynamics in the hard way.
0:24:29 Yeah, I was a hard way.
0:24:31 A lot of companies do.
0:24:32 Yeah, because we built our first product
0:24:34 and it was selling and the sales process was mature.
0:24:36 We have a mature sales organization.
0:24:38 Now we started building our second product
0:24:40 and said, “If we have a mature sales organization,
0:24:42 let’s give them the second product to sell.”
0:24:45 They started selling the second product and they failed at it.
0:24:47 And I was like, “These people are so good in selling,
0:24:48 they’re just being so successful in it.”
0:24:51 But the challenge is when you have 100 customers
0:24:52 and you have 50 references
0:24:56 and you are in the magic quadrant for something
0:24:57 and everything is well refined
0:24:59 and how you sell is different than
0:25:01 when you’re a brand new product with zero customers.
0:25:04 So they just started struggling
0:25:05 and they say, “Your product sucks
0:25:06 and this new product is not good,
0:25:07 so we should throw this away.
0:25:08 We should not build any new product.”
0:25:10 And I was like, “If you’re not going to build new products,
0:25:11 our growth will slow down,
0:25:13 so we have to learn how to make, sell it.”
0:25:14 So we internally structured,
0:25:17 it’s like if we were good at selling a new product,
0:25:18 so what changed?
0:25:20 So maybe we should build a model
0:25:25 which used the same thing that worked for the very first product.
0:25:27 So we reorganize ourselves in a model
0:25:28 like all startups within startup.
0:25:29 So like we are a startup,
0:25:31 but we’ll form new startups inside it
0:25:34 and we’ll sell the same way, the way we sold our first product
0:25:35 in the beginning.
0:25:38 This is a well-known problem.
0:25:40 Often the second product never takes off
0:25:44 because it doesn’t get the visibility or attention
0:25:47 or expertise that’s required
0:25:49 when a new product is released.
0:25:51 And there’s a sales compensation aspect to it also.
0:25:51 Absolutely.
0:25:52 Because the sales people,
0:25:54 they can sell the mature product
0:25:57 and it’s just easy to sell at that point
0:25:59 and make their numbers by doing it.
0:26:00 Now you give them something,
0:26:02 a new product which is much harder to sell.
0:26:03 Because you’re not going to make your numbers.
0:26:05 So how did you adjust the compensation accordingly?
0:26:08 So you almost have to create a separate,
0:26:11 almost evangelical new sales team
0:26:12 just like you do in the beginning.
0:26:14 Just like you start out.
0:26:16 You don’t even know what the productivity is.
0:26:18 You don’t know a lot of things.
0:26:20 And you learn that across that new product line
0:26:23 just like you would do at the start of a company.
0:26:24 So this connects the dots
0:26:26 between the idea of a startup and a startup,
0:26:29 the evangelicals or evangelism that you mentioned
0:26:31 and the different sales learning curve for each.
0:26:32 They’re kind of all the same thing.
0:26:33 That makes a lot of sense.
0:26:34 I mean, quite frankly,
0:26:36 the analogy that came to mind for me
0:26:38 as an ex-developmental psychologist
0:26:40 is that when you’re doing some kind of a research study,
0:26:43 you can never know the effect of variable X
0:26:45 if you’re manipulating too many variables at the same time.
0:26:47 What you’re really describing is isolating one variable
0:26:49 in order to diagnose what problem
0:26:52 so you can then sell in this case that is a solution.
0:26:54 However, it’s expensive to go do that,
0:26:56 to have a startup within a startup.
0:26:58 Like here I have my sales organization,
0:27:01 now I have to go hire more sales people
0:27:03 that are different than the ones I already have
0:27:05 to go sell this new thing.
0:27:07 And at what point do you say,
0:27:09 okay, we have to, for every new product,
0:27:10 do you have a new sales force?
0:27:11 Well, what’s the answer?
0:27:12 I’m asking you guys.
0:27:15 Well, I’ll tell you what we did.
0:27:17 So what I broke into AppDynamics
0:27:20 was that we said the sales learning covers three phases.
0:27:23 One is my first 25 customers for the product.
0:27:25 25 to, that’s like phase one,
0:27:27 which is very, very, almost the founders are selling.
0:27:28 We call that the initiation phase.
0:27:30 Yes, there’s the 25 to 100 customers.
0:27:32 And then after 100 customers is a mature product
0:27:33 we can, our sales force can sell.
0:27:35 That’s the execution phase.
0:27:38 So for the first 25 customers for the new products,
0:27:40 we actually got the product management team
0:27:43 to really sell it the way your founders will sell
0:27:45 in the brand new startup,
0:27:47 instead of hiring a new sales force for that.
0:27:50 But after that, our sales force could take it.
0:27:51 The phase two, they could take it.
0:27:53 The phase three, they were good at it anyways.
0:27:54 So for our fourth product line,
0:27:56 which we call real-time business monitoring,
0:27:58 this is exactly what we observed.
0:28:01 The existing sales force was a lot more tuned
0:28:02 to selling the existing product
0:28:04 because it was well-trodden path.
0:28:05 For the fourth one,
0:28:08 we literally constituted what we call a SWAT team.
0:28:10 It constituted the product management.
0:28:12 Couple of engineers, the best sales engineers,
0:28:14 and one solution architect.
0:28:17 We literally went and sold some of the top deals
0:28:19 and created the sales enablement material,
0:28:21 the market positioning.
0:28:24 And in fact, once we created that,
0:28:27 then we used it to train the rest of the sales force,
0:28:28 even not everyone.
0:28:31 And once we hit that first 10 sales people,
0:28:32 they are cracking it.
0:28:34 They are making more money with better incentives.
0:28:36 Then the rest of the sales force is like,
0:28:38 “Oh, there is something big there
0:28:40 that I also need to sell.”
0:28:41 So we had to do it in stages,
0:28:45 but we literally did a SWAT motion for like eight months.
0:28:46 It’s kind of like a flywheel.
0:28:47 You have to get it going.
0:28:50 And once it has some momentum behind it,
0:28:52 everyone picks up on it.
0:28:57 I would also say that as the regular sales organization
0:29:00 starts to sell this new product,
0:29:02 as managers, you want to make a big deal about it, right?
0:29:05 You want to promote it and say,
0:29:07 “Hey, did you know in the East region,
0:29:09 we just sold new product X?”
0:29:15 And it was for $150,000 or $1 million or whatever.
0:29:17 And that gets everyone excited,
0:29:19 especially if it comes from the CEO.
0:29:23 Salespeople, I mean, everyone loves to be recognized
0:29:24 for their success.
0:29:26 And if it’s important to the company,
0:29:28 then doing something as simple as that
0:29:30 from a leadership standpoint
0:29:33 also has a very beneficial upside
0:29:36 for all the other people who want to get that recognition.
0:29:38 It’s an easy thing to do,
0:29:42 but you often may forget about it or whatever as a CEO.
0:29:43 Yeah, literally what Peter said.
0:29:45 Once we did this SWAT motion
0:29:48 and created those initial amazing sales,
0:29:50 the big dollar sales upwards of million and so on,
0:29:53 literally we did internal sales.
0:29:55 We had to sell to the rest of the salespeople.
0:29:57 We got our CRO, CEO.
0:29:59 They literally are the brand ambassadors
0:30:00 of this new product and say,
0:30:01 “The message is simple.
0:30:05 The best new product you can sell higher,
0:30:08 more in the short time and make more money.”
0:30:11 For our annual sales kickoff,
0:30:14 that’s a big message and we got our customers in there
0:30:16 and we got the best selling sales reps
0:30:19 and the rest of the sales team sees and…
0:30:20 They want to get on board.
0:30:22 Exactly. I want to get on to the train.
0:30:24 One of the things that I have seen
0:30:28 on the negative side of this
0:30:30 is companies release too many products.
0:30:33 And so then every week,
0:30:36 a new product manager is out there trying to…
0:30:37 Rally the team.
0:30:39 They are rallying the team around this head.
0:30:42 So it’s very important to make sure you’re focused
0:30:45 on a few things that are really going to work well
0:30:47 and don’t let it, from a leadership standpoint,
0:30:48 get out of control.
0:30:51 Like it’s great for people to try experiments and all that,
0:30:52 but don’t let it get mainstream
0:30:54 until you know it’s going to be mainstream.
0:30:57 Otherwise, there’s 50 products on the price list
0:30:59 and everyone’s fighting for visibility.
0:31:00 And it becomes very distracting.
0:31:01 Very distracting.
0:31:02 Because the sales force is expensive.
0:31:05 So if you take your sales force that’s doing
0:31:08 and you try to give them too many immature products to sell,
0:31:10 you’re reducing their productivity.
0:31:11 Your expense goes up.
0:31:11 It’s not good.
0:31:14 So you do want to get to that level of maturity
0:31:16 before you give it out to your broader sales force.
0:31:16 Right.
0:31:18 So tell me though, as a leader of the company then,
0:31:20 because you have these processes inside,
0:31:22 I’m hearing the broader context
0:31:24 of the trade-offs of both approaches.
0:31:25 How did you strike the balance
0:31:26 and figure out what to focus on
0:31:29 and then what to sort of keep off the list?
0:31:31 I mean, you have a lot of interesting rules of thumb so far.
0:31:33 Steve Jobs and the Walter Isis and Biography
0:31:36 have made the entire team list all the best things
0:31:37 that they were learning that they could do
0:31:39 and then they crossed everything else off the list,
0:31:40 except for the first, top three.
0:31:41 Like what was your process for that?
0:31:44 Our process, I would say, as a startup,
0:31:47 most of it in our case came from that 2/3/1/3 rule.
0:31:49 Like 1/3 of our engineering investment
0:31:52 we can put on expanding our addressable market.
0:31:56 Now 2/3 we put on serving our currently addressable market,
0:31:58 which is like improving the product,
0:31:59 adding features, capabilities, all of that.
0:32:03 And 1/3 we improve on new use cases,
0:32:06 new adjacent markets, new adjacent users
0:32:08 that we are currently not serving.
0:32:10 So whatever will fit into that will define that.
0:32:13 Another system that we use is working backwards
0:32:14 from a longer-term goal.
0:32:18 We put in this plan called our path to 100 million revenue.
0:32:20 And when we say, okay, we want to get to 100 million revenue
0:32:22 and how would our business look like
0:32:25 and how much we can do at a fast pace
0:32:27 with our existing products
0:32:30 and what we would need to add to the new products to get there.
0:32:32 And then we also have sort of a rough timeline with it.
0:32:34 But that’s once we got there,
0:32:35 we put a new plan together,
0:32:37 which is our path to a billion dollars of revenue.
0:32:38 So which was like, okay, from 100 million to,
0:32:41 if we want to get to a billion dollars of revenue,
0:32:42 what would our business look like?
0:32:44 And we realized when we did that math,
0:32:47 and this is again a rough math, you never know,
0:32:48 that if we want to get to a billion dollars of revenue
0:32:51 from 100 million in like seven years, let’s say,
0:32:53 or six years, our plan was,
0:32:55 we need to have at least 40% of our revenue
0:32:57 coming from these new adjacent products.
0:33:00 Otherwise, our growth would not get there.
0:33:02 And then we have to build this, like that’s,
0:33:04 so there was the part of like what you can do
0:33:06 from a bottom up investment perspective,
0:33:07 like engineering resources
0:33:10 and what you need top down to get to a billion dollar revenue.
0:33:13 – Right, it’s working backward to provide the focus.
0:33:14 – And you need to do both, you know,
0:33:17 and find the intersection of like what you can do bottom up,
0:33:18 you can’t build 10 new products.
0:33:20 So you, what you can build,
0:33:23 and then what you need to build to get to a,
0:33:25 some kind of revenue, long term goal you have.
0:33:27 – And at that point in time is probably when
0:33:31 you start to have a M&A function in the company
0:33:35 to start looking at outside, you know, you have, well,
0:33:36 you have organic growth,
0:33:39 which is using your team to go build
0:33:41 whatever needs to be built.
0:33:42 And then you have an organic growth,
0:33:47 which is basically buying or licensing technology and teams
0:33:49 that are not inside the company.
0:33:51 Because I would argue if AppDynamics
0:33:54 was growing to be a billion dollar company
0:33:56 and you had the capacity to support
0:33:58 from an engineering standpoint,
0:34:01 two or $300 million of product design,
0:34:03 how are you going to build 10 new products
0:34:07 if that was the envelope that, or even three products?
0:34:07 – Right, right.
0:34:12 – So at that point in time, it’s a build versus buy.
0:34:14 Do you raise more money and go build a team
0:34:15 to go build something,
0:34:18 or do you go buy something and integrate it in
0:34:20 and both have their challenges.
0:34:22 But that’s another function inside the company
0:34:24 that usually comes about that point in time.
0:34:26 – Like you acquired three small companies,
0:34:28 you know, as we did that for different things,
0:34:30 but sometimes it’s like just accelerating the time too.
0:34:31 – Exactly.
0:34:33 – It seems like it comes down to speed to market
0:34:34 and what the competitors are doing.
0:34:35 – Yes, like if you build from scratch,
0:34:37 like, you know, from zero lines of code,
0:34:39 it would have taken us two to three years
0:34:42 to get a reasonable product in the market.
0:34:43 You know, by the time we matured it
0:34:46 and found the product market sales fit of it and all that.
0:34:47 But if you acquired something,
0:34:50 we probably could have cut it down from two or three years
0:34:51 to half of it, right?
0:34:55 So, or maybe like, you know, maybe even 75% in some cases.
0:34:57 So that’s always a factor.
0:34:59 – Okay, so why don’t we then just talk a little bit
0:35:00 about pricing and packaging
0:35:02 because that’s such an interesting subset of this.
0:35:06 So we’ve so far talked about the product market sales fit,
0:35:08 the go-to market and the product as a part of that obviously
0:35:10 because those are the two things you need.
0:35:12 How does pricing and packaging come into this?
0:35:13 Because that’s a really top of mind question
0:35:15 for a lot of founders.
0:35:17 – Pricing and packaging is a complex thing.
0:35:20 Pricing is probably more complex than packaging in some ways.
0:35:24 I look at pricing as more a function
0:35:26 of what is the business value.
0:35:28 If someone buys your product, is it worth $50,000?
0:35:29 Is it worth $100,000?
0:35:31 Is it worth $300,000?
0:35:33 What would, how would people justify?
0:35:35 So that’s definitely one function.
0:35:38 Second is like, you know, the rule that I’ve used for pricing is
0:35:40 can your sales people describe it simply?
0:35:42 Like if a customer is going to ask you a simple question,
0:35:44 so how do you price your product?
0:35:46 And if you can’t describe it in half a sentence,
0:35:49 that’s, you have two complexes for pricing.
0:35:51 And yes, there could be like nuances to it
0:35:54 and there could be like details to it,
0:35:55 but you have to be able to describe it.
0:35:56 Like in AppDynamics,
0:35:59 we are monitoring all kind of different systems, right?
0:36:00 So the pricing was complicated,
0:36:03 but we said, okay, the simple pricing philosophy
0:36:04 that our sales people can tell is,
0:36:08 we price by how many production systems you have.
0:36:10 And that was kind of a rough unit of pricing.
0:36:12 And we can measure production systems in different ways,
0:36:14 but that’s how we price it, right?
0:36:16 So, and that’s, it’s at least simpler
0:36:18 that your pricing philosophy is simpler for people.
0:36:20 So that was my rule number one.
0:36:21 The rule number two there was
0:36:23 that whatever the pricing is measurable,
0:36:24 because if it’s not measurable,
0:36:25 and now the customer says, okay,
0:36:26 how many license I need to buy?
0:36:29 Our sales people cannot even tell them very clearly,
0:36:31 like, okay, this is how you measure how many you need to buy.
0:36:34 However, it will create a lot of friction.
0:36:36 Or like once they buy it,
0:36:37 we can’t measure and practice, like, you know,
0:36:39 how many they’re using it.
0:36:40 That’s a problem as well, right?
0:36:43 So if we can describe our pricing in half a sentence,
0:36:44 that’s one.
0:36:47 Second is it’s measurable that people can measure presale
0:36:49 and people can measure post-sale?
0:36:50 We have a good pricing system.
0:36:53 The question after that is, okay,
0:36:56 what is the price, like the dollar price of it,
0:36:59 for that model, per license, how much you pay?
0:37:02 That ideally, to me, it comes down to business value.
0:37:04 And enterprise software,
0:37:06 especially a selling to large enterprise,
0:37:09 I argue to most founders is that you should price
0:37:10 more than you think you should.
0:37:12 Oh, we always say raise prices.
0:37:13 That’s our mantra around here.
0:37:14 Exactly. So price higher.
0:37:15 You can always discount.
0:37:17 If there’s not value, you can always discount.
0:37:18 And customers are not going to pay more than what the thing
0:37:20 they should pay anyways.
0:37:22 So you can always discount and then go there
0:37:23 instead of pricing low.
0:37:27 I love the idea of this pricing framework.
0:37:30 A lot of companies try to come up with a new model of pricing.
0:37:35 So instead of price per user or price per application,
0:37:40 it’s price for the number of, you know, air vents your server has,
0:37:40 right?
0:37:44 Let’s just say you have to come up with pricing
0:37:47 that the customers used to actually paying for.
0:37:50 If you start to create something that’s totally new,
0:37:51 it creates friction in the system.
0:37:54 So it’s, you know, typically users or capacity
0:37:56 or numbers of something.
0:37:58 I love the measurable piece.
0:38:01 A lot of companies try to get overly cute
0:38:02 and it gets overly complicated.
0:38:05 And then salespeople can’t explain it.
0:38:06 And even if it’s simple,
0:38:11 if it’s not understandable by the buyer,
0:38:13 they’re going to be like, well, we don’t, you know,
0:38:14 like, what does that mean?
0:38:16 So I’m hearing you say founders out there,
0:38:17 be creative with your product,
0:38:19 but don’t get creative with pricing.
0:38:20 Like do what you need to do.
0:38:21 That makes sense to the buyers.
0:38:22 Yeah, exactly.
0:38:26 There’s difference between consumer purchase versus enterprise.
0:38:28 Enterprises, they need a little bit more certainty.
0:38:30 You’re getting it from a budget, right?
0:38:32 They’re already preplanned.
0:38:35 That’s one and they want certainty in the sense that,
0:38:39 oh, is it a one alert or thousand alerts?
0:38:40 And if it’s two variables,
0:38:42 then suddenly if it blows up budget,
0:38:43 he cannot manage it.
0:38:45 So that’s why they’ve won that certainty
0:38:47 and visibility into that pricing.
0:38:49 So by certainty, you mean they don’t want surprises.
0:38:49 Exactly.
0:38:53 They need to be able to be reasonably predictable on this
0:38:56 to not have surprises at the end to say, well, it’s free.
0:38:58 And then we’ll measure it in the future,
0:39:00 but they don’t know how to budget for it.
0:39:01 How do you as a founder know
0:39:02 that you’re not leaving value on the table
0:39:05 when you’re giving that certainty or like surety,
0:39:06 that this is what you’re going to get?
0:39:10 If you put in like the good other way process in your,
0:39:11 as part of your sales process,
0:39:15 that’s how you guarantee you’re not leaving money on the table.
0:39:17 We had a very structured sales process.
0:39:18 And in the sales process,
0:39:19 we would look at like, you know,
0:39:22 what is your current state of doing this?
0:39:24 How much is it costing you roughly, let’s say?
0:39:27 What would be a new state with AppDynamics
0:39:28 and what would that cost you
0:39:29 and how much money are you going to save?
0:39:32 And then price is a little bit of a function of,
0:39:33 you know, how much money are you going to save
0:39:34 and what’s your other way?
0:39:37 And that’s, you know, if we are charging more
0:39:38 than what’s going to save them,
0:39:40 they’re not going to pay for it anyways, right?
0:39:42 Most companies, I see the mistake of like,
0:39:44 you know, especially you’re selling into large enterprise
0:39:46 and you’re asking for, you know,
0:39:48 half a million dollars to someone.
0:39:50 You don’t back it up by a business case.
0:39:51 People are not going to pay you.
0:39:52 And then you leave a lot of money on the table.
0:39:54 If your business case is strong,
0:39:56 you would not leave money on the table.
0:39:59 Yeah. We had a process called Business Value Assessment, BVA.
0:40:01 It went along with the sales process
0:40:04 in which we always had that premium positioning.
0:40:09 And we enabled our sales to convey why we are premium.
0:40:13 And secondly, we had those steering committee meetings
0:40:15 in which the big check pair,
0:40:20 we literally read out the ROI value use cases back to them
0:40:22 so that they can justify internally
0:40:24 as to why they are paying that premium.
0:40:28 So giving that message so that they can repeat internally
0:40:31 and justify it, that’s what helps the part of the process
0:40:33 and the premium that we can extract from this.
0:40:36 So what I’m hearing you say is that sales enablement created,
0:40:39 it smoothed the road, kind of greased the wheels for you.
0:40:41 But then on top of it, you played back
0:40:42 and made sure to play back the ROI
0:40:46 so that then your internal champion could continue advocating
0:40:49 that just has value and keep moving that forward.
0:40:52 One question I have is the third element
0:40:55 you mentioned, Jyothi, in your framework, the value.
0:40:57 That’s the big kind of gray, goosey area
0:40:59 because that’s the least measurable one.
0:41:01 How do you know the value to the customer?
0:41:04 Did you just say the simple opportunity cost
0:41:05 if their systems went down?
0:41:07 Or did you think bigger than that?
0:41:08 How did you figure that out?
0:41:10 You know, the best way is to ask the customers.
0:41:15 And this is something I would do in the product market fit phase.
0:41:16 You don’t have, you know, a lot of people say,
0:41:18 “What is product market fit?”
0:41:19 Even the initial one.
0:41:20 It’s a very philosophical question.
0:41:21 What is product market fit?
0:41:24 In such a vague question, my simple definition is if you can,
0:41:27 if you understand the business value of your product,
0:41:28 that’s when you know.
0:41:30 And so, you know, the question that I used to ask
0:41:32 in the product market fit phase was,
0:41:35 how would you justify the business case to your boss?
0:41:38 So, like, I’m talking to, say, a director of DevOps,
0:41:40 I’ll say, “Okay, how would you make the business case
0:41:42 to your boss if you have to buy Abdynamics?”
0:41:44 And he’ll say, “We had one outage a month.
0:41:46 Every time we have an outage, you put six engineers there
0:41:47 and this is how much it costs us.
0:41:49 And because our users have bad experience,
0:41:51 we lose this revenue, this is how much it costs us.”
0:41:53 And once I start hearing it,
0:41:55 I know, like, this is what I would,
0:41:56 I would like to teach our sales force
0:41:57 how to make the business case
0:41:59 because this is how the customers are articulating.
0:42:01 And unless you understand the business case,
0:42:04 you don’t really have a product market fit.
0:42:06 You know, it’s because that’s what you have
0:42:07 to engineer your product around.
0:42:09 Right. So you’re saying the value is defined by the customers.
0:42:11 Do you guys have any thoughts on how to define the value?
0:42:14 That sort of loosey-goosey vague thing of,
0:42:16 you want to make sure you’re selling value?
0:42:18 You know, there’s a couple of things which I’ve used
0:42:20 in companies that I’ve run as,
0:42:22 if you look at competitive products,
0:42:24 what are they, what’s the chart, you know,
0:42:25 how much do those cost?
0:42:28 There’s an overall stack of technology.
0:42:30 And if you’re providing a certain solution,
0:42:32 what is that stack in general?
0:42:34 How do people, how have they budgeted for that?
0:42:39 And then I always like this concept of charge
0:42:40 more than you think in there.
0:42:42 And you can always discount back
0:42:47 to make sure that you’re not really leaving value on the table.
0:42:48 I didn’t say money.
0:42:49 I said value on the table,
0:42:51 which I think is very important.
0:42:55 You know, the thing that is also I learned along the way
0:42:58 is customers actually like to spend money for value.
0:43:00 It’s not a problem we all do, right?
0:43:03 Even as consumers, it’s not a problem.
0:43:05 And to come in with the low cost,
0:43:09 like if your value is lower cost or whatever,
0:43:14 that tends to be as soft as not standing up
0:43:16 for the value that you’re actually producing.
0:43:19 And if you have the proper go-to-market,
0:43:20 you have the proper product,
0:43:22 and you have the proper positioning,
0:43:28 then you can basically get the maximum dollars
0:43:29 that customers are willing to pay.
0:43:32 And everyone feels like it’s a very fair transaction
0:43:35 that the value being delivered to the customer
0:43:38 is very reflective of the price that they pay.
0:43:39 I think that the fair part is important.
0:43:40 Customer feel is fair,
0:43:43 and you have to help them feel it’s fair also
0:43:44 by making that case.
0:43:45 Yes, the competitive dynamic
0:43:47 will also describe some of the price.
0:43:49 If your competitor is selling for much cheaper,
0:43:51 there may be some pressure on you
0:43:53 to sell for that price as well, right?
0:43:56 But in amdonomics, we had a bit of that challenge.
0:43:59 One of our primary competitors was price much lower than us.
0:44:00 And they were designed more for SMB.
0:44:03 Their product wasn’t as strong as ours for enterprise.
0:44:05 And so internally, sometimes people will come in,
0:44:08 “Hey, our competitor is charging much lower.
0:44:10 Shouldn’t we decrease our price also?”
0:44:11 And I’ll tell them,
0:44:13 “Okay, do we really believe our product is superior?
0:44:16 If our product is really superior,
0:44:17 why would we not charge higher?”
0:44:18 So we’ve made a rule
0:44:20 that we can always charge higher than them.
0:44:20 We actually said-
0:44:23 So you existed the downward pricing pressure.
0:44:25 Yes, because if our product is superior,
0:44:28 we are, the customer is getting superior value.
0:44:29 Either we are lying about it
0:44:32 or we are misguided about it or whatever.
0:44:34 That we believe it is, but it’s not.
0:44:36 Or we are not articulating the superior value.
0:44:37 That’s our problem.
0:44:38 If our product has superior value
0:44:41 and we know how to articulate and make the case about it,
0:44:43 why won’t we charge superior than them?
0:44:45 And we always priced higher than our competitor
0:44:46 because of that.
0:44:48 And people are fine paying for it.
0:44:51 And I think that to further that point,
0:44:54 the articulation of value often comes
0:44:56 with having a sales organization.
0:44:57 That’s what they do.
0:45:00 And so when we often think about,
0:45:02 “Hey, let’s don’t have a sales organization
0:45:04 so we can build more product.”
0:45:05 Often what gets missed
0:45:08 in the whole product adoption cycle
0:45:12 is the idea of selling value into the customer
0:45:16 where value is not necessarily felt
0:45:18 through a self-service product or whatever.
0:45:20 You just can’t see the value
0:45:22 or appreciate the value
0:45:24 until an organization comes in
0:45:26 to actually promote those pieces
0:45:28 that may not be self-evident.
0:45:29 At the end of the day,
0:45:30 it’s all about marketing,
0:45:32 getting products to the market, right?
0:45:35 And for that, you have a classical four-piece.
0:45:37 So product, it doesn’t go in isolation.
0:45:41 Product, the pricing, promotion, and the place.
0:45:43 At the end of the day, it’s the customer.
0:45:45 With an intimate knowledge of the customer
0:45:48 and what exact pain process today
0:45:50 and how you want to change it in the future,
0:45:53 understanding that customer dynamic
0:45:56 literally helps you define these four aspects.
0:45:59 And that’s what a good founder earlier on
0:46:01 or a good product manager
0:46:03 literally defines these metrics
0:46:04 by understanding the customer.
0:46:05 So those four-piece.
0:46:07 Yeah, that’s what a good product manager
0:46:08 should be doing.
0:46:10 I was running the product line,
0:46:12 the new US business IQ product line,
0:46:14 both product and business operations.
0:46:15 Is that an unusual model?
0:46:18 Because you’re an engineer who’s doing product.
0:46:19 Like, what is the ideal way
0:46:22 to essentially architect the product management
0:46:25 or product org functions in this framework?
0:46:26 Are product managers salespeople?
0:46:27 Are they engineers?
0:46:29 Depends on who your audiences are.
0:46:32 To me, the product manager’s first job
0:46:34 is to understand the customer
0:46:35 and the classic definition
0:46:37 being the voice of the customer.
0:46:39 So at DevDynamics, the product was technical.
0:46:42 Our users were engineers in many ways.
0:46:46 So all our product managers had an engineering background.
0:46:47 But if I had a consumer product,
0:46:49 I’m building up a fashion app.
0:46:52 My product manager probably would be very good
0:46:53 in understanding my consumers
0:46:56 as someone who’s experienced in fashion.
0:46:57 For any business I’m doing,
0:46:59 I would hire a product manager
0:47:01 who can understand my end users very well.
0:47:03 So it kind of matches the profile of your target customer.
0:47:04 Exactly.
0:47:07 Did you guys have different product manager profiles, though,
0:47:09 then for the one-third of the organization
0:47:10 that was doing the more evangelical startup
0:47:13 within a startup next product line types
0:47:15 versus the ones that were doing the core?
0:47:17 Because I would imagine those are two different sensibilities
0:47:18 and they might or may or may not transfer.
0:47:22 Yes, I would say the profile is a bit different.
0:47:24 The product managers,
0:47:26 once you have a V1 product kind of going from there,
0:47:27 the profile could be a bit different.
0:47:30 But at that point, you need multiple product managers.
0:47:33 So you still want the product managers
0:47:36 who could go and help create something
0:47:41 disruptively unique, feature-set, etc.
0:47:42 But you also want product managers
0:47:44 who are very good in understanding
0:47:46 the how it’s working out in the market
0:47:49 and what’s the adoption curve
0:47:52 and what’s the pricing working.
0:47:56 So the product management skill set
0:47:58 also has different things to it, right?
0:48:00 What are the qualities to look for?
0:48:02 We typically look for three aspects.
0:48:03 During the initial phases,
0:48:06 the empathy to understand the customer,
0:48:08 to define your product.
0:48:12 And the second aspect is the business aspects of,
0:48:14 okay, how is it going to work with the sales?
0:48:16 So literally, the product managers,
0:48:18 they travel with the salespeople
0:48:21 and understand how do you position that value?
0:48:23 Okay, now how do I price it?
0:48:24 And so on and so forth.
0:48:26 And the third most important thing is execution.
0:48:27 Once you define it,
0:48:30 product doesn’t come out of thin air, right?
0:48:32 You need to work with the engineers,
0:48:34 literally attract your schedules
0:48:37 and really execute it and deliver it to the customers, right?
0:48:38 So these are the three aspects,
0:48:41 the empathy and those business aspects.
0:48:43 And finally, the execution.
0:48:45 So these are the three skill sets
0:48:48 that I typically look for in a very strong product manager.
0:48:51 They’re very creative parts of product management,
0:48:54 then trying to come up with creative solutions
0:48:55 as the second part.
0:48:58 And then scaling the operation behind it,
0:49:01 which is like a machine that can process the requirements
0:49:02 on customers, on sales,
0:49:05 figuring out the right pricing, packaging, all of that, right?
0:49:06 So you want different skills.
0:49:08 Seems like a bit of a unicorn, to be honest.
0:49:10 And many times it’s not just one person, right?
0:49:11 It’s your product management,
0:49:12 then becomes a group as a time.
0:49:14 And you want different people with different,
0:49:17 like that balances out the variety of skills.
0:49:19 You compliment each other’s skills,
0:49:20 and that’s the composition of an ideal team
0:49:23 while you have more than an individual contributor.
0:49:25 Okay, so any parting takeaways,
0:49:27 given your, I’m sure you have a million takeaways, Jyothi,
0:49:29 but any big message for our founders
0:49:31 and other founders out there trying to do this,
0:49:32 whether enterprise or not?
0:49:36 It was a good discussion on the product market sales kind of fit.
0:49:40 But my primary advice I will give to founders listening this is,
0:49:45 don’t overthink too far ahead in many cases as well.
0:49:46 Like, you know, the skills you need to master,
0:49:50 zero to one million dollars of revenue,
0:49:52 find the product market fit, one to ten million dollars,
0:49:55 find the product market sales fit,
0:49:59 iterate on it, let’s say ten to 75 million dollars,
0:50:03 scale the sales organization and go to your go-to-market.
0:50:06 Then 75 million plus is when this,
0:50:07 how do you build our product number two,
0:50:09 and product number three, and product number four starts.
0:50:10 That’s a great framework.
0:50:11 So, you know, anyone listening this,
0:50:13 I don’t want them to like, you know,
0:50:14 when they are in the zero to one million stage,
0:50:17 they’re trying to figure out how to do product number two.
0:50:19 That’s, there’s no point spending time on that.
0:50:21 So the skills that you have to learn in the,
0:50:24 you know, the organizationally, as an organization,
0:50:27 and also as a founder, they change as you go.
0:50:29 And my advice to people,
0:50:32 focus on the thing that you need to learn the most
0:50:35 to get to the next milestone and excel at it,
0:50:38 then worry about the next one when you get there.
0:50:40 That’s a great piece of parting advice,
0:50:42 and it brings us full circle to where we started
0:50:45 in terms of how founders evolve as their companies do.
0:50:46 And that’s a fabulous framework.
0:50:48 Thank you for joining the A6NZ Podcast, Jyoti.
0:50:51 Thank you all for this wonderful conversation.
0:50:51 Thank you Peter.