Convergence of GTM Strategies

John Jahnke:

All righty. So, we’ll get started. So, hey, everyone. Welcome to our webinar. Thanks for joining. Really excited to be joined today by Elliott Robinson. Elliott is a partner at Bessemer Venture Partners. He’s also co-author of the 10 Laws of Cloud Computing, as well as the Annual State of the Cloud Report. Hey, Elliott, you want to say hi to everybody?

Elliott Robinson:

Hello, everyone. Really nice to meet you all, at least virtually or through the cloud. Thanks for having me today.

John Jahnke:

Awesome, awesome. My name is John Jahnke. I’m the CEO of Tackle. At Tackle, we built a platform that makes it really easy for software companies to open new pathways to revenue through the cloud marketplaces. We make that a buy versus build decision, because no one wants to build software to sell software. We were founded late in 2016. The founding premise of the company was this intersection of go-to-market and cloud and the fact that the marketplaces were starting to emerge as an area that software companies were experimenting with.

John Jahnke:

We got started with an early customer cohort that included companies like NewRelic and PagerDuty and Auth0 and Dhruva. Clearly, that initial customer cohort informed the fact that we were on to something just in this intersection of cloud and go-to and market marketplace. Amazingly, over the last four years, we’ve gotten to partner with hundreds of software companies as they embark on what’s becoming a revenue transformation as they work to embrace cloud marketplaces. Through that time, we’ve seen the emergence or evolution of all of these new go-to-market models.

John Jahnke:

Product-led growth has become a main topic of discussion. I think, you can’t go on to Twitter or LinkedIn today and not see something about product-led growth, about usage-based pricing, about marketplaces. All buyers are getting more comfortable with buying everything online, especially through the pandemic. The pandemic accelerated this movement in everyone’s personal life. I think we’re seeing that momentum continue into the B2B world. We’re excited today to dive a bit deeper into cloud-era go-to-market.

John Jahnke:

So, agenda wise, we plan to do just a quick level set on the why we’re here. And then Elliott is going to lead us through a discussion around some of the findings from the go-to-market section or the state of the cloud marketplace report. And then we’ll double click into product-led growth, usage-based pricing and cloud marketplaces, as well as discuss examples and some ways you could try to bring your product pricing and packaging strategy or go-to-market into the cloud era simply. And then last thing, we’ll talk a little bit about the future and we’ll do Q&A. I’d say for anyone on, feel free to chat questions into the Zoom chat. We’d love to weave them into the conversation where we can. If not, we’ll come back to them at the end.

John Jahnke:

Cool. So, as we kick off the discussion, we’re at the dawn of this new go-to-market age. I really liked this slide from Kyle at OpenView that shows… I would debate the wording a bit. … software buying has evolved. I think software buying is evolving. We went from this era of sales-led to marketing-led, now to this product-led growth, usage-based pricing era. What we’re really seeing is there’s a new wave, fourth wave of go-to-market emerging, which actually looks at… For simplicity’s sake, we’ll just call this cloud go-to-market era that looks at all of these waves and puts them together. If you think about it, clouds are elastic. They’re scalable. They’re built for change. They leverage consumption-based principles.

John Jahnke:

It give you ways to manage things that weren’t possible in the past. In this cloud era of go-to-market, you will want to leverage all of these versions of go-to-market to enable growth. You’ll want to leverage all pathways to revenue. You’ll want to be very dynamic in how you manage your business without impacting your product. Your business and product need to be loosely coupled to enable you to experiment more with how you deliver value and delight your customers.

John Jahnke:

One other table setting point, I think along the same lines and this came out from some friends at Coatue late last week or earlier this week that I think reinforces this evolution of this cloud era go-to-market or all of these go-to-market strategies being required. They call it the hamburger model, but the fact that you need your product in the middle and you need both bottoms up and tops down. I thought it was just a simple representation of what a lot of companies are thinking about, because there’s so much talk about bottoms up go-to-market, everyone’s trying to evolve, but really, it’s not an or. It’s an and. I thought this was a great way to show that. But this evolution is complicated.

John Jahnke:

If you spent time researching these topics, talking about them for your own company, thinking about how to evolve, it gets more and more complicated the further you dive in. Most existing customer companies, their go-to-market systems are not very flexible. They’ve come up with one or two ways of selling things. They’re predictable and highly controlled. If you look to change the system, it can be really complicated. If you want to add new go-to-market motions, if you want to change pricing, if you want to evolve the consumption-based pricing, all of those amplify the complexity. In early stage companies, you can do some experimentation, because it’s really gut based.

John Jahnke:

But the further you get into focus around product-led growth and go-to-markets, go-to-market and product-led growth and scaling your go-to-market, a lot of companies will tightly wind their go-to-market on their product. Unfortunately, that tightly winding of product and go-to-market limits your flexibility to embrace new things. As you get bigger, the pricing and packaging conversation becomes much more cross functional and requires a lot of time because there’s implications on your existing customers and your new customers. This sometimes leads people to think they can go outside and work the consulting firms to help them through the research phase.

John Jahnke:

That problem as you get bigger, a really big company, it gets to the point where there’s so little flexibility in go-to-market that oftentimes finance and operations will just say, “No, that’s not possible,” even though the business team may see new ways to sell things. That’s leading to new competitors emerging daily, embracing these new go-to-market from the day they’re born or created and that being a competitive advantage. I like the highway analogy when we talk about go-to-market just to show complexity, but I don’t think the highway analogy represents that your go-to-market needs to be built for change. Go-to-markets tomorrow will need to be much more flexible than they are right now.

John Jahnke:

So, I mean, that’s a tee up of some of what we see happening in the world today, but I want to use this as a transition to Elliott to start to walk through some of the state of the cloud research around these three topics, because there is so much you can do. There’s so many places you can go. But product-led growth is a cornerstone for the way you should think about go-to-market. It is clearly winning. Everyone is working through how to embrace this usage-based pricing, I think, we see as this next frontier, that everyone’s trying to determine how to embrace and complement their existing go-to-market, whatever it is with a usage-based model. The last thing, cloud marketplace is a new way to experiment both with bottoms up and top down. So, Elliott, take it away.

Elliott Robinson:

Awesome. We’re going to do our best to make this interactive here, John. But as you mentioned, Bessemer has led at least from a venture standpoint in partnering with great cloud-based founders. The real emergence and we’re probably an innings five or six of where we think cloud enterprise software companies can go or will go, but we all woke up, I guess, in February, March of last year and said, “Okay, so we’re in this new normal,” really spawned by COVID and the emergence of remote work. Next slide, please. I think it was really encapsulated well by Satya.

Elliott Robinson:

Now, I used to work at Microsoft, so I’m partial. I worked at Microsoft. I also worked at Microsoft Ventures. So, I got to see this really unique relationship between Microsoft, its core enterprise to Office Suite, what is the crown jewel right now, which is Azure on the public cloud side, and the company and our venture funds relationship with startups. It was, I think, April when he first said, “We’ve seen a lot of our customers that have been talking about digital transformation probably for a decade.”

Elliott Robinson:

It’d become a word that you would find in board meetings and board decks and it was somewhat hard to define, but the reality is customers were at home, employees were at home, that middle layer of how business and consumers were operating were at home or remote first. A lot of the people that talk about digital transformation for a decade plus had to get off the fence. Now, they came to folks like Microsoft and said, “Well, how can you help us digitize our business? How can we deliver services? How can we get that product to the last mile?” I think Microsoft was a huge beneficiary, particularly on the B2B side. I would say the same thing about Amazon on the consumer side. Next slide, please.

Elliott Robinson:

Now, if you just take a step back, there’s going to be some updated Q1 numbers coming out. But we, as a firm, spend a lot of time brokering really solid relationships with the big public cloud players, because if you’re in your seat, going to market with them or co-selling or selling through their marketplace can be really advantageous. They’ve got tens of thousands, if not hundreds of thousands of sellers in the space. If you can get your product in their bag or on their marketplace, that can be huge. We’ve run a couple of different models. At least at the end of Q4 growth rate, it looks like Azure is going to overtake Amazon, at least in the public cloud reach and scale. Somewhere in the next two and a half years.

Elliott Robinson:

I think a year ago, we predicted four years. You can see the tail of the graph starting to kick up. A lot of that is driven by what we would call legacy industries or the industries that I think Satya was really speaking to that have gone more digital and pulled forward their transformation plans due to COVID. So, if you’re a B2B software business selling into more traditional industries, where it’s been a bit more challenging, Microsoft presents a really good opportunity. Of course, Amazon was early trailblazer in this space. They can be interesting but good partner as well. Next slide, please.

Elliott Robinson:

So, when we think about traditional go-to-market, you can click through this, because the slide builds. For the last five years at the state of the cloud, we’ve spent tons of time with our portfolio and go-to-market leaders, asking them, “What are best practices…” Back one slide. “… on the traditional go-to-market or what we call the sales and marketing learning curve?” Now, in general, if you’re a company call it sub 5 million, it’s going to be a lot of John-led sales, where the CEO is going to spend a lot of time working with customers and high valued relationships directly.

Elliott Robinson:

But after you get to the point where there’s some repeatability, customers are buying and hopefully renewing, sometimes even upselling, you realize that going into sales-led sales, where you hire your first VP of Sales, BDRs, SDRs, the real takeaway… I don’t want to bore you with this and you probably know it. The real takeaway, we found for best practice traditional field sales, you want to have about 4X ROI before you go to the next phase. So, whatever it costs for you to run your current sales or you want to be seeing 4X in bookings or ACV bookings, however you and your business measure that go-to-market success before you move to the next phase.

Elliott Robinson:

But the reality is in the new normal, a lot of this stuff is just changed. That juicy steak dinner that you used to have where you could get a customer over the line, that’s different. Conferences will forever be changed. I mean, I know CES is next year, they’re planning for it now, but TBD on who shows up, how meetings are going to happen and how businesses are going to transact. I think folks like Tackle are uniquely positioned to help move us into that new normal. Next slide, please.

John Jahnke:

Elliott, before we transition there, I’d be curious on as an investor, as you evaluate companies and look at their go-to-market, what do you prioritize? Amongst even these three models, what do you guys look for as an investor?

Elliott Robinson:

Yeah, everyone looks for things a little bit different, but I would say the real source of truth comes with a metric that we do a lot of reading and I do a lot of writing about called gross margin payback period. Now, I could go really deep into a rabbit hole to talk to you about that, but in essence, if you know what your typical sales cycle is, let’s say, it’s 60 to 90 days or quarters worth to get a new customer in. If we look at your sales org or your sales expense line for that same 60- to 90-day quarter period, if we know what your gross margin is, we want to know gross margin effective, how many months does it take for you to turn that new logo or new customer that you brought in into a margin generating relationship?

Elliott Robinson:

So, if it takes you 90 days or three months to get them in and let’s say that costs you 50 grand of your sales org and marketing org spend, based on what the number is or the ACV that you close that logo or an average logo, how many months, gross margin effective, does it take for you to pay them back and turn them profitable? I would say best practice, super, super best is somewhere between five and eight months. Really good is 9 to 13 months. And then it trails off from there, but all these numbers are nuanced. Don’t fall beholden to metrics.

Elliott Robinson:

The reality is if you’re selling to the oil and gas industry, for example, these are multi-million dollar multi-year contracts, just the procurement cycle can be 90 to 120 days alone, let alone the sales cycle. So, we understand that if it’s a seven-figure deal on average for your business, the reality that you can turn them profitable or pay that back gross margin effected in six or seven months, it’s not realistic. Now, if we do see a situation like that, we’re probably all in and really interested in investing and partnering in the business. But I would say anywhere between 8 and 13 months is really, really good.

Elliott Robinson:

The real takeaway there, John, to make sure I give the real world context to the question or at least the answer, your average relationship with a new customer on the B2B side is 12 months. That’s just the natural way of doing business. So, we know gross margin effective, we can turn that net new customer logo positive or cash flow positive to the business under those 12 months. That means even if they churn out or you have a portion of your customer base that churns out, you actually generated a profit off of that relationship in under 12 months. That is really at the heart of the business.

Elliott Robinson:

Now, if you’re a business that has six months contracts, a 13- or 15-month payback period can be a little trickier, right? Because you may have a change in relationship with customers as they come through. So, for me, that’s a source of truth tied to this go-to-market. All these strategies will bleed into how you measure the health of your go-to-market org in your business, but gross margin payback period is certainly the one I care about the most. What you’ll often hear talked about is cap payback as well. I think as a mathematician and finance nerd, I like adding the gross margin piece, because you can fudge these metrics a bit.

Elliott Robinson:

Awesome. So, John teed this up. But every year when we do stay at the cloud, we try to figure out, “What are the key trends that are driving the market, generating the best outcomes?” What’s most important is giving startups, founders, functional leaders inside of these companies some takeaways, case studies, and best practices that they can then go, take that back into their business, and hopefully have some of the wild success that we found.

Elliott Robinson:

So, let’s click forward. We’ll start talking about product-led growth. We don’t have time to go through each one of these companies, but we find them to be some of the best that we’ve seen. We’re going to talk a little bit about Intercom at least at a high level.

Elliott Robinson:

Next, we’ll talk about usage-based pricing. We have a great company called Courier that uses API calls to manage their usage-based pricing. I think John and I will make that a little bit interactive, because there’s trade-offs when you go from a fully baked ACV model to a bit of a usage-based pricing model. And then cloud marketplaces, which John and his team are truly the experts, but we’ve been really lucky here at Bessemer to partner with some startups that have really scaled and scaled rapidly on the backs of Tackle and the value added platform that they provide. Next slide.

Elliott Robinson:

So, first up, product-led growth, I think there might be one slide in between. I’m not sure, maybe not. We oftentimes look for companies that have incredible ROI in terms of what we call product and customer love. How do you measure that? It’s everything from reviews. How much time do they spend in the product? What’s the MAU versus DAU? But at the end of the day, if you just take a step back, what this chart is really trying to share is that if you had invested in all the product-led growth companies over the last decade plus, you would have seen about 112X return on your capital.

Elliott Robinson:

The real reason is there’s a secret sauce and a flywheel that we’ll be discussing in further slides that allow these companies to grow with their existing customers but also get new customers and really smoothly with low friction and then turn them on to paying customers at the right time. Next slide.

John Jahnke:

Product-led growth, I mean, really is a mindset. I think the most simple way to think about it is every product company thinks about how they iterate on their product. What does the backlog look like? How do I build new features to delight my customers? How do I make the features that I’m delivering even better over time? But we’re transitioning into this world where you really need to operate your growth model with that same product mindset. What value does your product deliver? How do your teams align around the product being the center of all things from a value creation standpoint? How do you instrument your product for usage as an example?

John Jahnke:

And then I think a lot of people do all those things really well, but really bringing go-to-market and bringing the revenue system and the product alignment together into the narrative is the place that everyone’s working to get better. So, I think from there, we’ll go to an example. Elliott, take a peek at the chat at some point when you have a second.

Elliott Robinson:

Awesome, I will. I apologize, I had this slide in my head the other way around. I’ve presented this a couple of times. I think Karen usually comes up first. So, as John was just mentioning, it really is a mindset. That’s a good way to think about it, because it encapsulates the PLG in the right way. It encapsulates a bunch of different pieces of the org. It’s not just a marketing function. It’s not just a sales function. It’s not just a product function.

Elliott Robinson:

When we looked at Intercom, this is a company that Bessemer has been partnered with for a number, a number of years and right now led by Karen Peacock. They’ve been one of the shining examples of how to take a traditional sales model, reorg the entire company around product-led growth. They’ve seen an incredible, incredible change in the business. So, traditionally, there’s a bit more of that sales and marketing learning curve. VP of Sales or AE goes to market, meets with a bunch of targets in the territory, and they sell.

Elliott Robinson:

Now, that still happens, but going back to John’s great slide on the hamburger model, they need to figure out, “How do we insert the product where it can help both close the enterprise top down model and field sales model, as well as build some customer and product and engineering love and do some bottoms up?” So, they had to sit there and whiteboard, “Okay, how much data are we getting from customers that’s going back to sales, that’s going back to marketing, and that’s going back to the product? How do we reengineer the product such that we’re creating a flywheel?”

Elliott Robinson:

So, the biggest insight for them that we’ve talked about already is they had to decrease friction and time to value. So, typically, if you read about Intercom, you knew what the value prop was, it would take a long time to show value, whether it was signing it up, getting connected into your IT stack, getting the data where you need to get to get the flywheel going. They had to sit down, get the feedback from customers, sit down with product, figure it out, and then respit that out to the market through marketing sales. They saw an incredible increase. It’s a private company.

Elliott Robinson:

So, I can’t talk about too much of their top line, but I think I can say that it’s been about a 2.5X increase after moving to a full PLG model versus a year over year growth in the traditional field sales model. They’ve got a bunch of great context on their website talking about how they did that. Next slide.

John Jahnke:

These are some ways that we use just in the principle of nail it and scale it to try to validate that as a company, we’re executing on a product-led growth strategy. Tackle as a company, we are not a usage-based pricing company. We have more of a mid-tier pricing model. You can get started small and grow with us, but it’s not also something that’s an API usage model. So, some could look at us and say we’re not a product-led growth company, but we operate with that product-led growth mindset.

John Jahnke:

I think first and foremost, alignment is key. This really starts at the top. It’s a company level thing. You need all of the core functions, product, marketing, revenue, customer success, sales ops, finance, legal, all thinking about product and growth and how to eliminate the friction associated with your customers getting value.

John Jahnke:

Second is you really need to instrument the product. So, how do you deeply understand usage over time? What are the personas that are getting usage? How do you consistently get feedback not only from your customers, but from your internal teams, as well as thinking about innovation, feedback around areas of innovation? This all gets to the point of value.

John Jahnke:

If you’re iterating on your product and the product is central to everything you do, you can very clearly deliver value to your customer, but how do you think about tracking that value over time? How do you then translate that value to monetization, which is where the revenue strategy plays in? So, these are just some simple tests if you’re thinking about, “Am I a product-led growth company? Are we behaving with a product-led growth mindset?” that you can use against your own organization to evaluate.

Elliott Robinson:

The next thing we’ll talk about is usage-based pricing. In the lead up to this, we said, it’s highly nuanced. At times, it can be a double-edged sword until you figure it out. One of the companies that we’ve seen do this really well is a company called Courier. So, they’re focused on notification platform. So, they partner with United Airlines when they need to send you certain notifications about your flight, about your seat, about your gate changes. They help manage that for you. It sounds simple, because you say, “Man, how many of these do I get a day?” But if you stratify that across their own employee base and their consumer base, it’s actually a pretty interesting platform.

Elliott Robinson:

Now, if you look at usage-based pricing, some of the biggest companies out there that we see, whether it’s Snowflake, Twilio, Datadog, these are multibillion dollar decacorns, Snowflake being the largest cloud software IPO ever. They benefit from the fact that they have usage-based pricing. The real benefit for them is that as their customers usage grow, their bill grows, their financial relationship with those customers grow as well. Courier, for example, smaller company, there’s probably different sized companies here on the chat. They have three different tiers. So, from a case study perspective, they have what they call the developer tier.

Elliott Robinson:

So, this is tied with product-led growth. They allow developers or people at the bottom of the hamburger to get into the platform, experience and accrue value really quickly. That’s free forever, but it’s tapped at a usage. So, once you hit 10,000 notifications sent to your end user or end customer, you can no longer be free and then it moves to a $99 a month plan. And then once you hit 10,000 messages again, I don’t know what the fraction is, but it’s like one-fifth of one penny per notification. And then when you hit that cap again, it goes to the growth plan, which is $2,000 a month. There’s different usage-based and pricing tiers there.

Elliott Robinson:

So, the real takeaway is that if you’re thinking about that flywheel or that hamburger for your business, you really want to limit friction coming in. So, you can get more people trying the product where your field salespeople or your SDRs or BDRs don’t have to touch every person that gets a good experience or accrue some value out of your platform, but you also want to build into the PLG and usage-based pricing motion. Once you hit that cap or you see enough usage going, you can insert the salesperson or the sales mechanism in the product itself, such that you can turn them into a paying customer next time.

Elliott Robinson:

Why does this really matter? So again, we mentioned how much cloud software investing and research we do here at Bessemer. Another metric that we care a lot about, John, is something called net dollar retention. So, what does that say? That that means over an annual period or whatever the contract life period is, how much is an existing customer paying you the next year without you having to necessarily sell them on something new? What we’ve found in our research is that usage-based pricing companies, once they actually achieve scale, they’re seeing net dollar retentions about 10 to 15% higher than their non-usage-based pricing tiers.

Elliott Robinson:

So, like we said, everything’s nuanced. When you’re a much smaller company, being usage-based in your pricing can have some challenges and you really want to massage that. But as you scale, what you’ll often find with your existing customers, it’s much easier to get them to pay for more the following year, because their usage is so high. They’re used to paying you six or seven figures already. So, it’s really hard to turn off. So, in the public markets, companies with much higher net dollar retention means you can still grow without selling new logos. Those companies typically see a much higher market valuation in terms of their revenue multiples, because that revenue quality is underpinned by usage-based pricing. Next slide.

John Jahnke:

Yeah. So, some of the pros and cons and I think this is an area near and dear to my heart, just so many companies I talked to are trying to figure out their usage-based pricing models. I mean, the pros are really clear as Elliott described. If you can decompose your capabilities and allow your users to pay for what they really use, that allows your users to identify value much more quickly. There’s a ton of momentum in the industry, I think, pioneered by the cloud providers shifting the business model towards a much more usage-based, consumption-based mindset.

John Jahnke:

Ultimately, if your users are getting more and more value, they won’t likely resist an expansion and contract over time. But the complexity, if you haven’t gotten to this point, is really like that business model and product complexity. In some ways, usage-based pricing can be a one-way door. You have to think about your existing customers. You have to think about your new customers. You have to think about how they’ll perceive that. There’s a lot of discussion around, “How do you give people calculators in order to estimate what some of the usage charges could be over time?”

John Jahnke:

We actually find it’s really hard to experiment with usage-based pricing. You’re going to have to do it in a very small cohort or think about the consequences very deeply before you execute on it. We will come back to this point under the umbrella of cloud marketplaces, because there’s a great opportunity to leverage some of the capabilities that the marketplaces have to enable some experimentation with usage-based pricing that I think some of our customers are finding a lot of value from. The last piece, just being complicated for the users to understand. There’s a whole industry that was born out of disassembling the pricing models from the cloud providers, which is what can happen when usage-based models really get the scale. They can be pretty complicated for users.

Elliott Robinson:

Awesome, next slide. So, probably three years ago, here at the firm, we started hearing more and more from CEOs and go-to-market leaders about cloud marketplaces. At the time, I was still at Microsoft Ventures. One of the promises we had with our portfolio companies and startups that we partnered with was we have this unique ability to help you co-sell with Azure. Now, in the very early days, it was still very much a traditional go-to-market sales motion with Azure, but we saw more and more that companies wanted to take that traditional and personal sell out, at least on the front end, many times from the front end to the back end to the close.

Elliott Robinson:

One of the companies here at Bessemer, where we saw really benefit from the emergence of cloud marketplaces and great platforms like Tackle is they were able to get their product placed well, transact, price less than friction on procurement, and let really smart people like John and his team carry the water and help through all of those details. So, Auth0, incredible company that we back, I think, all the way back in 2012 when it was a three-person team. It recently was just acquired for $6.5 billion dollars by Okta. It’s a great identity access management and security company. They saw a 10X increase in marketplace growth year over year.

Elliott Robinson:

So, what does that mean? That means more and more customers were exploring and finding them in these marketplaces, but also willing to transact digitally without doing a lot of the hand to hand combat or even those juicy steak dinners that we talked about. Next slide.

Elliott Robinson:

In our research, we found the benefit of some insights from the Tackle team that 80% of sales transactions are going to happen through some form of a digital channel. When you’re doing things digitally and cutting folks like myself or John out of the process, those things end up happening a lot faster. So, we saw a huge decrease in time to close. And then if you look forward, we’re predicting $3 billion in transaction volume this year.

Elliott Robinson:

I’ll let John talk about where we think it’s going, but we’re just scratching the surface in terms of, for go-to-market leaders on this call or trying to figure out how to scale this side of the business, getting in early is what we’re telling all of our portfolio companies to do now and partnering with folks like to Tackle to make sure that they’re super well positioned as we’re seeing this as a bit of early watershed moment. Next slide.

John Jahnke:

Yeah, we have tons of content about marketplace and all the nuances of marketplace. Feel free to check out Tackle’s blog if you want to dive in deeper. But just quickly on the pros, the ability to complement both your bottoms up motion, as well as your top down motion with marketplace, I think, is a pretty unique value proposition and aligns to where we see the cloud go-to-market era moving. And then if you talk to anyone, you listen to the earnings calls from the cloud providers, the one budget that was not impacted through the pandemic were the cloud budgets. They saw a massive expansion and you can tap into those budgets as you look to use marketplace, which enables the ability to partner with the cloud sellers and get into some co-sell motion.

John Jahnke:

That usage-based pricing experiment is really using meters that are provided by the cloud marketplace in combination with some metering solutions from Tackle that can give you the ability to have your solution, take a first step towards usage-based without having to fully rewire it into your product. So, we have some customers doing some really unique things there. We’re a platform that makes all of buy versus build decision.

John Jahnke:

On the con side, it does require enablement. This is a new go-to-market motion. So, you have to figure out how to inject it into your go-to-market system in a way that’s natural. So, we help people work through some of those challenges. Not all business models are supported consistently across all the clouds. You have to think a bit about how you want to sell, who your buyers are, and making sure that you can execute consistently if you envision going across cloud marketplaces. Lastly, there is a cost associated with the channel that all the cloud providers take for getting this incremental value of access to budget and access to their large customer basis.

John Jahnke:

So, bring it back to that, how do you nail it and then scale it around both usage-based pricing and cloud marketplaces? So, I think first things first, experimentation is key. A lot of our customers, early customers like Auth0 started their journey with marketplace as an experiment. They saw a way to complement their existing sales motions with the cloud marketplace. They did an experiment. That experiment was successful, lead to incremental revenue and incremental customers. They were able to grow from those experiments.

John Jahnke:

We see that happening with usage-based pricing today, where even people who tapped into the ability to complement enterprise selling with these private offers from the clouds are now saying, “Well, how can I construct a model for usage-based bottoms up pricing as well?” So, experiment, get started, start selling, do some transactions. I think, the guidance we always give people is start small, one cloud, one product. Go build the muscle of executing in these new ways, and then grow from there, because it can get complicated fast.

John Jahnke:

I think from now, the experimentation and the starting selling, especially if you’re doing usage-based experiments with the cloud marketplaces, you can use that to refine your usage-based models, because there’s not a lot of places you can get real data about your buyers and how they’re reacting to these new pricing models in a way that doesn’t force you to build a lot of software or a lot of instrumentation into your product. So, there’s some unique ways to do that, just to refine your usage-based model as you think about your product pricing strategy over time.

John Jahnke:

And then lastly, back to that original point, product-led growth is a mindset. You have to apply that mindset both to usage-based pricing and cloud marketplaces. You will iterate. This is not a set it and forget it motion. You will grow and change over time. It’s really important to enter with that type of mindset.

Elliott Robinson:

That’s a great point. So, the last thing that I’m going to cover here in just a minute or two, one of the big takeaways we’ve seen, we saw it coming but really again, pushed forward by COVID is the traditional sales and marketing learning curve that we keep talking about has been thrown out. But then when we think about the traditional sales funnel, where customers come in at the top of the funnel or maybe even sometimes in the middle of the funnel and they get kicked out as either a closed one or a lost customer, the reality is particularly for the folks that you keep, that’s not how it works anymore.

Elliott Robinson:

What you really want to do is create what we think about is a flywheel or circle of creating champions inside of your business from a go-to-market perspective. We think about it in 4Cs. We’ll touch on them really quick and then open up to Q&A. What we’ll talk about is captivating new customers or recaptivating existing customers, catalyzing a sale.

Elliott Robinson:

So, a lot of the things we talked about in terms of, “How do we make sure that we’re turning people who are in the system or going through the funnel or the get to know process into a paying customer?” We’ll talk about, “How do we cultivate existing customers?” And then at the final end, turning them into champions. We’ll talk about one case study that we’ve seen the last year or so that played out really well. Next slide.

Elliott Robinson:

So, HyperSciences is a really interesting company based out of New York. You can click through to the end of the slide, so it’s just easier for folks to read, if they’d like. It’s a great enterprise software and machine learning company based out of New York City. They had done traditional sales for the first two and a half, three years before we showed up. We really wanted to understand, “How long is it going to take folks to turn to existing customers or new customers? How long is it going to take for us to upsell customers because the platform was great?” They were using more and more of the platform, but we weren’t really tooled to maximize outcomes for the company.

Elliott Robinson:

So, I’ll just touch on each one of these and we’ll move into Q&A. So, we had to find new ways. These are traditional buyers for the most part in a business like this, federal government agencies. In short, they’re digitizing a bunch of documents that you might find inside of AARP or the Department of Motor Vehicles and using a bunch of machine learning models to automate processes. So, think about is RPA 2.0 or a full stack of RPA. So, they had to recaptivate what are typically sleepier customers with a bunch of new marketing where they let customers speak about their own experience. So, nothing life changing there, but we found it as a way to reinvigorate existing customers and bring in like-minded customers.

Elliott Robinson:

Time to value can be long, because as I mentioned, they’re talking about digitizing and doing digital transformation for paper and lifting the data off of traditionally paper processes. So, we started to implement a PLG motion to figure out, “How can we get people up on the system really quickly?” We know the paper’s everywhere and the data is dispersed, but rather than figure out for 100,000 pages every day, how can we get 10 pages into the system and get their folks to see value? So, we were able to shorten time to value.

Elliott Robinson:

In terms of cultivating, every company had to figure out what remote first playbook is. So, customer success had to change. Our community manager had to change. How do we cultivate these people in a hybrid new normal? And then lastly, we really doubled down on our customer advisory boards. So, for all of you out there worried about, “How do we get new customers in faster?”, one of the best ways is really investing in the folks who are already in the system, figuring out what those learnings are, letting them speak on behalf of you and be the voice of the customer.

Elliott Robinson:

This is a really high level version, but as we drill down into this and smooth it out, next slide, it turned into some really great outcomes for the company. So, these are round numbers. They were just south of 300% year over year ARR growth through COVID, which when you’re selling in traditional customers and indices can be really challenging. We talked about usage-based pricing and platform usage growth. They saw 10X. We talked a lot about net dollar retention and what does that mean for them.

Elliott Robinson:

So, when they’re talking about page volume as their key metric of success in the platform, they saw 140% overall account growth and 170% net ARR growth. So, these are all of the strategies that we talked about encapsulated in one use case. The CEO, Peter Brodsky did a great job of leading the company through this challenging time.

John Jahnke:

All right. So, a couple things before we pivot to questions. So, first and foremost, how do you get started? This is somewhat just my opinion on this. Chasing the churns can be dangerous. I want to be a product-led growth company. I want to be a usage-based pricing company. I want to do cloud marketplace or be born marketplace native. I think the best thing to do is look at, “How do you want to sell? How do your buyers want to buy? And then how do you deliver them value fast?” These things become enablers.

John Jahnke:

All of these models, these growth models become enablers. But I think if you focus much more on how your buyers want to buy and how your sellers can sell and deliver value, it will lead you to these answers. Also, I think there’s a big thing around complexity. How do you start small and iterate and think not just about the business model complexity, but the product complexity over time?

John Jahnke:

Speaking of complexity, as we look to the future, we’re really just starting this fourth wave of go-to-market, this cloud go-to-market transformation. I think there’s a lot of new things that that will come in the future. First and foremost, your product and go-to-market teams will need to be able to seamlessly embrace more pathways to revenue. Forrester predicts there’ll be hundreds of marketplaces in the future. I think we’re really just starting to see what B2B software digital distribution looks like.

John Jahnke:

I think that influencers will start to become a story in B2B similar to how they operate in B2C. You’re already seeing this in the evolution of the partner ecosystem moving much more towards an ecosystem point of view versus a reseller point of view. You’ll need to think deeply. Just like we talked about how you have to instrument your product from a usage standpoint, you’re going to need that same level of instrumentation in your go-to-market system and data will be the driver. Some of the consumer patterns that we think about like next best offer or the ability to do much more dynamic pricing will be driven by that data about your go-to-market system.

John Jahnke:

In order to do that, you’re going to have to decouple your pricing logic from your product logic, that tightly versus loosely coupled. If it’s too loose, there’s friction between sales and product. If it’s too tight, there’s friction between the buyers and sales and products. So, you have to figure out how to decouple and get that right balance of loosely coupled with some bounded context. The last couple areas around provisioning and usage tracking and billing, it’s going to need to be seamless, independent of the number of go-to-market channels that you have. This is what we’re thinking about as far as the future of cloud go-to-market look like. Not many people have gotten to solve these problems. With their problems, we’re really starting to think about how to solve.

John Jahnke:

So, the first question was around shifting compensation thoughts in this usage-based model. Elliott, I responded with there was a recent article from Mike Scarpelli of Snowflake talking about this, which I just consumed recently, but I don’t know. Any other comments from you there?

Elliott Robinson:

No, nothing earth shattering. I think like an all things, I mean, we talked about nail it before you scale it. As you roll out different pricing tiers and get feedback from customers, I think that the biggest takeaway is don’t be beholden to it. You set the model. If it’s not working six months in, go back to your key customers and get that feedback and be willing to change.

John Jahnke:

Awesome. That’s great feedback. So, we had another question just around how we see the profile of reps changing in a usage-based model. I think that’s a great question. Similar, it was also covered in that Mike Scarpelli article where they talked about the elimination of customer success in the Snowflake model, which I thought was a bit radical at first pass. But when your salespeople are accountable for driving consumption, that’s not an unrealistic way to go. I grew up as an SE. As a system engineer, you spend time in sales, but you’re really thinking about how to help customers solve problems. I’ve read a lot lately about that more technical profile emerging in sales. I mean, Elliott, do you have any thoughts around profile salespeople?

Elliott Robinson:

Man, this one is really nuanced. I think it depends on who and what your company is and what you’re trying to sell. I would say one of the bigger distinctions comes in between, “Are you a product to platform sell versus a solution sell?” What I mean by that is if you’re just a product going out there and you have a usage-based KPI and that’s all that matters and it’s very defined, the value that you’re driving to a business, then yeah, I mean, you can tool your org and certain reps to just obsess over those KPIs.

Elliott Robinson:

If you’re doing a bit more of a solution sell, where you’re trying to transform large pieces of a customer’s business, their workflows and how they operate, I think that’s where it gets a little bit hairier, right? That sell or that value prop is a lot wider and a lot more encompassing than just the tool, just the KPI, just the usage-based measure that you’re obsessing over.

Elliott Robinson:

So, I’ve even seen in one or two of my own portfolio companies where it has changed, where we started off as more of a wedge or vertical product. We then expanded horizontally and are doing more of a solution sell and obsessing over that metric or consumption or usage-based pricing. We’ve now ratcheted back towards more of this solution selling. I wouldn’t call it necessarily a top down seller, but their DNA isn’t so driven by just those core metrics. It’s more of a vision and getting people aligned there. And then on the cloud marketplace side, if you’re going to market with a Microsoft or AWS, for example, it’s not necessarily usage-based pricing, but a lot of them get quota retirement based on Azure consumption, how many workloads they’re pushing.

Elliott Robinson:

So, that’s the type of thing where a sales rep needs to understand that. Whether it’s a direct channel sales or field sales collaborative go-to-market person, they need to understand and have a good relationship with Azure or GCP or whatever their cloud provider is to figure out, “How are they going to operate?” If I can actually push more workloads in this customer or this customer category versus another or even some geospecific sensitivities on their clouds proliferation into a space, that matters.

Elliott Robinson:

I just spent two days in Redmond, about four weeks ago, sitting down with Azure folks saying, “Okay, we know that we get quota retirement based on workloads, but what workloads matter most to you?” Because workloads in the government sector mean something different from SMB for them. So, there’s a lot of nuance, but it’s a great question. I think it depends on where you are and your product and company’s life cycle.

John Jahnke:

Yeah, I think that’s a great point, back to that how do your buyers want to buy? How do your sellers need to sell? Those should dictate the models you drive and not just the industry buzzwords. So, we have another question just around largest threats and gotchas when driving towards a product-led growth strategy.

Elliott Robinson:

Yeah, I’ve got some thoughts there, because look, for every incredible case study that we put into, say, the crowd report, there are certainly some that don’t go as well or don’t go well at all. It’s certainly a circular trend that’s been building for a lot of time. There’s a ton of success story. We had the chart that showed 112% return if you back those types of companies.

Elliott Robinson:

But the reality is I think the best slide that you presented on this topic was the mindset slide. It really is a mindset. It’s not just a tactical thing of, “Okay, so we’re going to make it really easy to sign up, really cheap to start, and then everything else is going to figure itself out.” It really is a mindset that has to come to either Chief Product Officer at minimum, likely your CEO or Chief Executive/Founder or whoever runs vision for the product inside of the company.

Elliott Robinson:

The biggest areas where I’ve seen challenges is really around that flywheel of catalyzing. When do you turn someone from, “Hey, I’m having a great experience. You haven’t charged me yet. I’m finding all types of value. Now, you’re asking me either for a credit card or I have to go to ask somebody to turn into a paying customer before you turn me off”? I mean, to address the question of the gotcha moment, that’s the toughest one. You’ve got to really get real time feedback. Because having it at one notification or usage-based cliff versus another based on the type of customer you’re going after and how they buy can be catastrophic.

Elliott Robinson:

Many times, you only get one chance to get these people into your ecosystem or into your product. If for some reason you turn them off or how you turn them off or when you turn them off can be really challenging. There’s no right answer for every situation.

Elliott Robinson:

But if I were to give one best practice, if you categorize or bifurcate between the size of your customer, there’s a lot of commonalities in terms of the size of a business and what type of decision making power or share wallet or share of credit card power an individual developer or VP level person might have and where you’re going to market there, if that’s a core piece of your market, you might actually want to tier your pricing around where you think their ability to pay without getting a VP level or SVP level approval for that, where that comes in.

Elliott Robinson:

We’ve seen some unfortunate cases where it’s free to get up onto the system, but now, the barrier to entry of a paid tier is 10 grand or 15 grand. That can be really tough for that developer pool that loves the product. Now they’re thinking, “Oh, man. To get 15 grand approved is this long 30-, 60-, 90-day process.” And then that time, they might actually fall out of love or move on to something else or go back to what they did before.

John Jahnke:

That is a great spot where would it be easier to buy from me on your cloud bill?

Elliott Robinson:

That’s exactly right.

John Jahnke:

Because cloud bills are expansive. All right, awesome. I know we are at top of the hour. So, we do have a handful of resources available. They’ll go out with the recording. There’s a lot of content out there, a lot of great content. Elliott, I just want to thank you so much for joining us today. Really appreciate the time and insights. I look forward to hopefully carrying this conversation on sometime in the future.