Posts

In Deliberately Underselling as Sales Strategy, I wrote about the importance of sizing contracts below customer needs to ensure customer success.

“A key part of the formula: crafting the right account executive compensation structure to reward this strategy.” I received a pile of questions asking for more detail.

Since then, I’ve spoken to many sales leaders & Lee Kirkpatrick who originally surfaced the concept during Office Hours on how to do this well.

“We need to start doing more with less. Finance told us our budget is decreasing by 20%.”

This sentence echoes in conference rooms across many software buyers today, irrespective of whether the business is healthy. Boards push prudence during a time of recession, which cascades through the organization.

Management teams expect to reduce operating expense by 20% predominantly through headcount reductions or hiring freezes - everyone from sardine startups to public megalodons.

What is the difference between web2 & web3, really? Yes, there are tokens and initial coin offerings and drops and discords. But, today, they resemble each other quite a bit.

Here’s my mental model:

Imagine a startup that sells sports cards. A web2 architecture for this app would have five parts

1. A transaction database: user 1 sold card ABC to user 3.
2. A metadata database: user 1’s first name is Samuel and his profile picture is found at this URL.
3. File storage: the profile picture file is saved here.
4. App server: the code that runs the application.
5. IaaS/CDN (Infrastructure as a Service / Content Delivery Network): the servers that run code.

Compare this image to a web3 architecture with the web3 parts in red.

In 2018 at Saastr, Jason Lemkin & I talked about private equity becoming an increasingly aggressive buyer of venture-backed software companies.

Last year, private equity firms inhaled $29 billion dollars’ worth of startups - a twenty-year record and 50% more than the previous peak.

The high-water mark underscored the importance of private equity sponsors as an exit avenue for startups in black Sharpie marker. In 2021, PE buyouts constituted more than 20% of venture-backed M&A by dollars, doubling in the past decade.

I wish I had a chart of the bid/ask spread in venture capital today.

The bid/ask spread in VC is the difference between the post-money valuation between a VC (the bidder) & a company (seller).

In the past few years, the spread has been tight. The market is liquid. Many startups sell shares to buyers at mutually attractive prices. Like the old stock trading floors with brokers yelling at each other, but in our era, we negotiate over Zoom coffees instead.

Yesterday, Office Hours welcomed Lars Nilsson, VP Sales Development from Snowflake to talk about his learnings across 5 companies he helped take public.

Throughout the hour, Lars provided insightful perspectives on how to build sales organizations. These the five most memorable takeaways for me.

1. In early-stage companies, founders sell for the first three to four quarters. Then, many founders opt to hire an AE. Hiring a sales or business-development representative (SDR/BDR) can be the better choice. Incoming account executives will want to see a significant lead volume before joining, especially when selling into the enterprise.

Before the Second World War, King George journaled the end of Neville Chamberlain’s term as prime minister:

“I accepted his resignation, & told him how grossly unfairly I thought he had been treated, & that I was terribly sorry that all this controversy had happened. … I sent for Winston & asked him to form a Government. This he accepted & told me he had not thought this was the reason for my having sent for him.”

Salesforce is worth $113 billion. 1% of $113 billion is $1.13 billion. ServiceNow is worth $34B and Workday is worth $33B. 3% of $33-34B is $1B. Atlassian is worth $20.5B. 5% of $20.5B is $1B. Why am I doing all this simple math you might ask?

We have reached a point in SaaS where a small fraction of an incumbent is a billion-dollar company. If you start a business tomorrow that is able to cleave 1% of revenue from Salesforce, you will have built a billion-dollar business.

Let me tell you a tale of two software sales processes.

Take 1: An ambitious account executive engages a sales prospect and hustles to sell the customer a mega contract that consumes nearly the entirety of a budget. Big commission check, high fives, president’s club, feeling fine.

Nine months into the contract, the customer realizes they have over-provisioned. The buyer’s eyes were too big for their appetite. Time for a crash diet - a 60% reduction in seats. The customer loses confidence in the account executive, feels misaligned, and blushes under the challenging questions from the procurement team.

Pop any venture firm’s website into the wayback machine, peruse the bios from the late 90s, and you’ll see statements like “I invest in Internet companies.” Or Web2.0 or SoLoMo. At the time, it made sense. But not anymore.

Why isn’t time kind to these types of proclamations?

Novel infrastructure often enables new software. We refer to each wave by its architecture advance: internet, mobile, cloud, data lake, single-page apps, containers, serverless.