Subscribe
Share
Share
Embed
How do you cultivate an efficient GTM engine? And what has Sam learned from building Pavilion and the community?
In the episode, we get into:
You can check out GTM23 here and Pavilion here.
In the episode, we get into:
- (00:00) - Introduction
- (05:48) - Culture and challenges
- (09:40) - The curated signs of an efficient gtm engine
- (16:29) - AEs = more revenue?
- (19:42) - Why sales gets all the love
- (24:28) - Alignment
- (30:48) - Free money created bad behaviour
- (32:32) - Going broad vs specific (TAM)
You can check out GTM23 here and Pavilion here.
Creators & Guests
What is The Revenue Formula?
This podcast is about scaling tech startups.
Hosted by Toni Hohlbein & Mikkel Plaehn, together they look at the full funnel.
With a combined 20 years of experience in B2B SaaS and 3 exits, they discuss growing pains, challenges and opportunities they’ve faced. Whether you're working in RevOps, sales, operations, finance or marketing - if you care about revenue, you'll care about this podcast.
If there’s one thing they hate, it’s talk. We know, it’s a bit of an oxymoron. But execution and focus is the key - that’s why each episode is designed to give 1-2 very concrete takeaways.
[00:00:00] Toni: Hey everyone, this is Toni Holbein, you are listening to the Revenue Formula. In today's episode, we're going to chat with Sam Jacobs from Pavilion about how to build an efficient go to market engine. But at the same time, we're also going to cover his learnings from building Pavilion.
[00:00:16] Enjoy.
[00:00:17] But, uh, usually Mikkel has something prepared.
[00:00:25] Mikkel: I have nothing today, actually. I mean, uh, no, what was I telling you just before?
[00:00:30] Sam: I have a question. What's, what's up with the, what's, what is the background? Is that the company logo?
[00:00:36] Toni: That's it. Yeah, that's it.
[00:00:38] Mikkel: Um, it was the only way I could get budget for a neon sign.
[00:00:42] Sam: It looks, uh, it looks like you're in a Japanese nightclub and I'm into it.
[00:00:48] Toni: My first, my first thing was like that it's, uh, looks like actually a Russian symbol as well. And so something, something further east, I would say, right.
[00:00:56] Sam: it looks nefarious. It looks, looks like you're up to no good.
[00:01:00] Toni: It looks like
[00:01:01] Mikkel: a yakuza thing. I'm just going to circle back to what Sam said. He likes it. So the branding is on point, it's on point. How we know? I think that was the introduction. Yeah. I already started thinking Segway. How am I going to stitch this together now? It's on point now. So we have a guest on the show today.
[00:01:19] It's Sam Jacobs, CEO and founder of Pavilion. Welcome Sam.
[00:01:23] Sam: Thanks for having me. I'm excited to be here.
[00:01:26] Mikkel: And we are equally excited as well because we're gonna talk about cultivating the GTM engine today. I know, this is something you focus quite extensively about. You even have a conference coming up pretty soon called, uh, GTM23 in Nashville.
[00:01:41] It's in October, right?
[00:01:43] Sam: Yep. October 10th through 12th.
[00:01:45] Mikkel: And, uh, I mean, you, I think you must love meeting up with folks because you also went on the road with Jacco. I've seen some pictures of you running. Um, so you've, you've been busy getting a lot around.
[00:01:57] Sam: I, I've been to a lot of places, uh, particularly this year. So I, last week I was in Toronto. The week before that I was in Seattle. That's where Jacco and I went for a run together. He, uh, I said, we need a picture. And there was a nice young lady running by us. And when I'm running and somebody tries to stop me, I get very upset because I'm like, this is my private time.
[00:02:17] I'm not stopping to give you directions. But this nice young lady stopped and she took pictures of us running. And she said actually gotta redo it, so like we did a couple takes. Um, so yeah, Jacco has that effect on people. Uh, Thursday I'm going to Charlotte, then I'm going to Boston for Inbound. Then I'm going to LA, uh, for the All In Summit.
[00:02:35] Then I'm going to, um, Denver, Atlanta, Austin, Seattle, and then back to, and then Nashville. And then I'm going to Singapore, Sydney, and Auckland, New Zealand.
[00:02:47] Mikkel: Wow. And we could be squeezed in just between all of that.
[00:02:52] Toni: Yeah.
[00:02:52] Sam: exactly. Yeah,
[00:02:54] Toni: Sam Jakob just on the plane from one place to the next.
[00:02:57] anyway, let's, uh, let's, um, actually one question. So when we talk with Jaco, he was talking about the revival almost of face to face, uh, now with AI and all of this crazy outreach and all this technology stuff.
[00:03:09] Um, is that some part of the thinking here for you to be, uh, you know, on the road, you know, meet with people and, you know, jump in a jet and actually see them? Is that part of the motivation actually?
[00:03:19] Sam: 100%. That's, um, you know, the pavilion, the company, is, uh, there's a lot of things that we try to do, but at the core, at the foundation of what we try to do, is we try to bring people together. And the reality is that... Um, generative AI and a lot of technology will replace a lot of our business behaviors. But the thing that it will not replace is the sense of in person connection that you get from breaking bread and having a meal and meeting people in person.
[00:03:49] And that's something that we've all been doing as humans for 30, 000 years, if not longer. And it's, it's the one thing that computers cannot replace. The sense, or at least yet, you know, maybe with a headset with Oculus and... You know, we can all, like, be, uh, have avatars and be rabbits and, you know, furries, uh, doing business on the moon.
[00:04:11] But, for now, um, there's a, there's a deep sense of connection that happens when you spend time with people in person. And, um, and we are rebuilt, you know, we've made, um... A bunch of mistakes and had a bunch of challenges as we've grown over the last couple of years and perhaps the biggest is that Really beginning in 2022.
[00:04:29] We sort of underappreciated the importance of in person connection And so we got rid of the sense of geographic chapters Which were the organizing principles for all of the different cities around the world where pavilion members lived and we're bringing them back now And we're gonna, we're gonna have a Copenhagen chapter, of course, and we've got Matt Gradin from the CEO of ComSor and a bunch of other folks to participate.
[00:04:51] And so this is part, also part of the trip, is getting people excited about bringing back local community, because we do a lot of digital stuff. We have Pavilion University, we have Over a hundred courses and schools and, uh, workshops that people can participate in. We've got over a thousand documents in our knowledge hub.
[00:05:09] So if you need a compensation plan, or you need a go to market plan, or you need a 30, 60, 90 day plan, all of that is possible, and all of that is possible with technology. But the thing that... Drove people to join Pavilion in the first place wasn't any of those things. It was the sense of there's a group of people that are in my city that care about my career and that are going to help me and we're all aligned by a common set of values around go to market.
[00:05:32] So that's that's
[00:05:33] part of the
[00:05:33] motivation.
[00:05:34] Toni: I'm really happy about this, uh, local chapter reversal. Uh, I really, I really like to see that and I'm signing up. I'm on my way, Sam. Uh, it's, uh, you know, it's, it's about to happen.
[00:05:44] Um,
[00:05:45] Sam: it takes 10 seconds, buddy.
[00:05:46] Toni: yeah, yeah, yeah. Um,
[00:05:48] so while, while Pavilion as a community, obviously, you know, it's online and they're kind of those local chapters, there's also Pavilion, the company behind that, right.
[00:05:56] And it's a little bit of a detour from, from our topic that we, uh, that we're going to talk about in a second. But, uh, um, I think Pavilion as a company is remote as well. Are there, are there any learnings that, um, that are spilling over into Pavilion, the company and how you run that with this whole remote versus in person or how do you, how, or maybe you differentiate, uh, differentiate between those two things.
[00:06:18] Sam: No, I, I mean, of course they're, they're different things. Pavilion the community is different than Pavilion the company, but Yes, there are, there are so many learnings. There are so many learnings and, you know, I write a lot on LinkedIn and, um, I, I say this a lot, but the reality is that everything I'm sharing on LinkedIn is a painful lesson that I've learned recently, right?
[00:06:38] It's not that like, oh, I, I'm trying, I'm trying not to present myself as some... I'm not some mystic from the mountain that saw, that sees the future. I am learning hard lessons every day about how to run Pavilion, the company. And this year, this past year, frankly, has been the hardest year of the entire time that I've done it.
[00:06:56] And that's, and you know, so one big learning is of course, like we're all part of the market. And when things were going really, really well in 2020 and 2021, that was because we were part of the market. And when, you know, Hoppin's raising a hundred million dollars or two hundred million dollars, and um, you know, Dooley's raising a hundred million dollars on, you know, very small revenue.
[00:07:16] And when all of those companies are raising tremendous amounts of money and they share it with us, our, our results look very good. And when those companies go out of business or pull their marketing budgets back, our results look very good. And so, um, and we are fully remote and that has been, uh, there's a lot of benefits and a lot of challenges.
[00:07:34] And, um, and there's also, you know, there's an ongoing conversation for all leaders, which is, you know, what we talk about. And you guys should both come on our, uh, the podcast that I run, Topline, but we talk about culture a lot. And whether, and what, what is the role that culture plays in the growth of an organization?
[00:07:52] And, um, and what is culture? And is culture something that you focus on intentionally? Or is it the byproduct of good execution? And, um, that's a pavilion the company has been wrestling with those challenges ourselves. We had a reorganization earlier in the year. We were 60 people, now we're 40 people. So, you know, we, um, cut headcount.
[00:08:13] And, you know, we're doing quite well. In a lot of different dimensions, but it's been a challenging, it's been challenging to run the company. And it's also challenging to run the company because, you know, I wrote a book called Kind Folks Finish First, and it's about kindness. And, um, if there's anything that sets you up to be the target, it's, you know, writing a book about kindness.
[00:08:35] I was with, um, a bunch of Gainsight employees, um, over the weekend. And, you know, Gainsight built their brand on their first most important value is human first. And they've been, you know, one of the best places to work for a long time. And they are also going through some challenges. And they are grappling with what does it mean to be human first when you're also focused on profitability and EBITDA.
[00:08:57] And you're not just focused on feeling good. And, uh, and that's the same, uh, challenge that we struggle with at Pavilion, which is you still need accountability. You know, you still need to drive results in the org. It's still a business. If it's not a business, that would be very different. If it was a non profit, I'd just be on the road raising money the whole time.
[00:09:14] But, um, but it is a business. And that means that kindness has to evolve in terms of its definition. It can't, it, it doesn't just mean being nice. It's, it has to mean running the business well.
[00:09:26] Toni: Yeah. I think, those are some really deep thoughts that I actually need to kind of process a little bit for asking an intelligent question
[00:09:31] Mikkel: on this. So I know exactly what I want to ask it. I mean, we can take it so many directions.
[00:09:36] Sam: I can be very high level, I can be very surface if you want, you know.
[00:09:40] Mikkel: I think what I've taken away just from the first couple of minutes of talking is. So you're out talking with a bunch of people and you yourself are sharing your learnings, which, you know, sometimes there are successes, but also failures, which sometimes, which when you get the biggest learnings at the end of the day, right?
[00:09:58] And so you, and given your position, I think you're able to help a lot of people through this show in curating, you know, some thoughts on how to actually build an efficient go to market engine, especially, especially right now at this time. And what I'm really curious about, what are. With all the people you talk with about building GTM engines, what are the things that keep, you know, coming up again and again, that are signs that this is actually what you need in order for you to have an efficient engine?
[00:10:26] Sam: Well, um, I do talk to a lot of people, and the reason, I guess, there's a couple ways to interpret that question. The reason that efficiency is important, we can start with that. Why is it important? It's important because the capital markets are not available or open to companies that are inefficient. And you can even see...
[00:10:46] You know, we, uh, the companies that are going public, right? There's three big IPOs that are coming this fall, uh, very soon, right? One of them is Arm, the other is, um, Instacart, and the third is Klaviyo. And Klaviyo had, uh, was unprofitable last year and growing very heavily, and this year they've moved to, I think, 10% if not more profit margins, and are now generating cash, and are...
[00:11:07] And their growth rate went from like 53% to 42% but still at 585 million in ARR they're doing incredibly well. So the first thing is that there's just not a lot of You know, uh, as my friend would say, there's no bid on the ask of unprofitable companies, right? There's not a lot of appetite from institutional investors to fund unprofitable companies with no visibility on being profitable at any level, right?
[00:11:31] Uh, at my level, there's still a venture market for, you know, we're, we're on our way to 20 million in ARR, so we're effectively a growth stage company, I guess, a small growth stage company. But even at our level, you know, there, you need to be growing very, very rapidly. Uh, if you still want to be unprofitable.
[00:11:49] And, um, I'm growing on... Growing rapidly while being slightly unprofitable is the same thing. That's still efficiency, right? It's growing nominally while being unprofitable. There's just no appetite for it. So that means that if... If you're running your business that way, you're going to go out of business, right?
[00:12:05] One way or the other unless you change. So this is a change, uh, that is a necessity even more than it is, um, you know, a choice. And it doesn't really matter... Actually, for now, um, although it might be should, but it really doesn't matter how much is on your balance sheet. I have friends that have 40, 50 million dollars of cash.
[00:12:23] On the balance sheet for their businesses, but they still are getting questions about gross margin and EBITDA from their board because it's just, it's a requirement to continue to pursue a higher valuation. So, so that's why it's important right now. So then what's the second, so what's the learning and how are people making this transition?
[00:12:43] They're making, so here's what I hear. Outbound doesn't work the way that it used to work. That's for sure, right? And everybody is worried that... LinkedIn inboxes and email and cold calls are less and less effective and they will only become less effective. Of course, there's an inverse correlation to, you know, conversion rate to volume, right?
[00:13:01] So as generative AI, I haven't seen it happen yet, but you can imagine that Outreach and Sales Loft and Apollo will start saying, click a button and you don't even need to write the email. We'll write the email, right? We'll, and, and we'll write the LinkedIn message and all of a sudden, Maybe there will be two to three times as much email and LinkedIn in mail volume as there is today.
[00:13:22] I don't know if that's going to happen because people are also aren't completely stupid. And so they'll, they'll, everybody will see this coming. But the point is that traditional channels aren't working. There's a couple things that aren't working, right? Large teams of SDRs, uh, that are, that are using...
[00:13:37] Canned or generic messaging, uh, to drive meetings to average, uh, sellers. That's not working, right? Most, uh, this is, uh, from our Sales Benchmarking report that we did with EBSTA, only 28% of B2B reps are hitting quota right now. So that's, that's a failure of that entire motion. So what are people doing in, uh, in response to that?
[00:13:58] Well, one of the things over the last couple of months that has been improving is actually sales efficiency. What does that mean? That means that we're firing the team. Or we're firing underperformers, and we're sending good leads to a smaller number of people that are converting them at higher rates. So one of the things that's working is just smaller number of reps.
[00:14:18] And, and people understanding that the way to get to your number isn't just to hire more reps. It could be to inqui to hire fewer reps and increase the quota of the smaller number of reps. And say, your calendars are gonna be full. We're just gonna fill you up with as many meetings as you can handle, and that is gonna be the way.
[00:14:35] And even if you get into the accelerators, it's still better for me than hiring 3 or 4 additional reps who, because what people are realizing is that every single time I send a good lead to an average, it's not even just close rate, it's average deal size, it's ACV, right? If you, if, if Mikkel closes at 15k, And it wins at 30%, and I send a deal to the same lead to somebody that closes at 15%, and 10k, the expected value of that is 1, 500 versus, you know, um, uh, three times as much, basically.
[00:15:06] Right? And so, every time, it's not even, it's that I'm losing money. It's that I'm losing money. And so, so one thing is, Smaller teams. Smaller, more effective teams. The second is, everybody's experimenting. It doesn't mean that everybody's figured it out, but everybody is experimenting with different go to market motions, and trying to see what else might work.
[00:15:26] And so what does that mean? That means, uh, partner motions, community led motions, product led motions, right? Everybody's trying to figure out what is... What is the path to, um, to the customer that has a higher close rate, that builds trust, that is cheap? And even Pavilion is doing that, right? Pavilion is doing that.
[00:15:43] When we went from 60 to 40 people, a lot of that was our outbound sales team. Because we real so, and that doesn't mean that anybody was doing anything wrong. It just means that to drive efficiency, I want to put my best leads in the hands of my best sellers.
[00:15:59] Toni: I have a question, I have a question on this actually. So, uh, I saw you write a lot about, uh, this, this mirage that people still have. I believe that hiring more AEs equals more revenue. And when I think some of that is, is in my perspective, a bit, you know, CFO finance driven. It's like, Hey, we need so much AR by the end of the year 50 reps that we need to hire and so forth.
[00:16:23] Do you see people waking up to this, uh, to this mistake or what's, what's your, you know, what's your take on the market there?
[00:16:29] Sam: Yeah, I do think people are waking up to it. And I think it's by, by, by necessity. And I think, um, they're, they're learning a couple things. Again, the first thing that they need to understand is that, like, exactly to your point, the way that you build the financial model has a big impact on how you run the business.
[00:16:46] And if you build the model where the key input is hiring more people and that's what makes you more money, then yeah, you're gonna hire more people. So one of the things people are learning is to... Basically triangulate their revenue target, uh, in a few different ways. One of the, the, the first way would be, let me figure out my historical results if I have them, and let me figure out the cost per opportunity and the cost per closed deal.
[00:17:06] And let me assume that, uh, those costs are going to remain fixed, if not slightly increased, to get to whatever revenue number I want to hit this year. And that's going to give me a pile of money. And that pile of money can be allocated fungibly across sales and marketing. So one of the things that I'm trying to teach people is that, Marketing is a cheaper, tends to be a cheaper investment than sales, right?
[00:17:26] I would say that the other thing, especially if you've had Jacco on here or Pablo, but especially Jacco, is that, you know, why are we talking about GTM? Why are we talking about GTM? We're talking about GTM because, um, Focusing just on sales is, is, is killing these companies, is really killing them. And why is that?
[00:17:43] It's because, um, all of the pre sale funnel is fully architected, right? We know how many leads we get, we know how many, what our win rate is, we know what our average deal size is, we know what our deal cycle length is. But, does every single company have a member health? To make sure that we're ready to play off of.
[00:18:00] Does every single company really understand, here's the percent of my customers today that moved from green to yellow and therefore need an intervention, and they need, they need me to call them, they need me to reach out to them, they need to use a different part of the product that they haven't been using?
[00:18:15] Because all of this leads to retention. And, retention, Jukka will tell you better than me. The thing that will drive your business over time is net revenue retention, but it's not even net. It is simply retention. It is that you cannot grow if you have high churn. You cannot grow and it doesn't it and only the youngest earliest founders believe are I was a VP of sales years ago.
[00:18:39] You know, I've been doing this a long time and VP of sales I was one of those people that was so excited about new business and so excited because you know ARR goes up immediately. Whereas like taking care of a customer really doesn't do anything for my number. It just sort of stays there. It's not as exciting.
[00:18:54] But the reality is that there, I don't even want to deal anymore if it won't renew, you know? And it, and it, and it's, and that's the education that's happening across the industry. That it doesn't, there, and there's a lot of ripple effects, a lot of ripple effects. And for example, one of them is contract structure.
[00:19:11] Because there's a lot of people that have been masking either transactional purchasing behavior, or um, non recurring purchasing behavior. A lot of people's ARR. Right? A lot of people's ARR is just not true. It's not true because it's got, it's got, uh, planned cancellations of people that aren't even using the product.
[00:19:30] And it just hasn't shown up. If you have a customer that said, I'm gonna cancel in October, and you're keeping them in ARR until October, that doesn't mean that the number is real today and, and fake tomorrow. It means that there is... So anyway, we're gonna say...
[00:19:42] Toni: No, no. Do you, so, um, so I think you're totally right, right? We see this also with our customers. The, the Nubis funnel is usually really well thought through and, you know, all the stages and, you know, from lead to MQL, SA, SQL, then the different, you know, pipeline stages and so forth. And then on the customer side.
[00:20:02] So we call it customer modeling. It's closed one to renewed, you know, or maybe have an implementation statute and step in between. Why, why do you think that actually is? You know, and even on this very conceptual level of how people think about the funnel, um, it's leading heavily to the new bid side, which then also means a lot of focus, a lot of money, a lot of budget will go to that side.
[00:20:23] A lot of brain power will go to that side. Um, why, why, why do you think it's a lopsided?
[00:20:29] Sam: I think it's just a lot more fun to close a new business deal than it is to close a renewal. And I, I think it's something to do with human psychology. I think it's something about our dopamine receptors and how, again, if you're at 10 million in ARR, you close a 100, 000 deal, you're at 10. 1, just like that.
[00:20:47] You're at 10 million in ARR and you renew a 100, 000 customer, you're at 10 million, you're flat. And it doesn't feel as exciting, you know?
[00:20:56] Mikkel: but I think it's also like who hits the gong while sales do. What about, what about, you know, CX, they don't get to hit the gong? What about marketing?
[00:21:03] Toni: Yeah, yeah.
[00:21:04] Mikkel: Different conversation
[00:21:05] Toni: altogether.
[00:21:06] Sam: Everybody should hit the gong, Mikkel.
[00:21:10] Toni: Wonderful. Um, so kind of stepping, you know, one level up and you, um. I think, um, I think you recently also maybe, um, did, did a, did a show, uh, on an, in top line on, on this topic, which is actually around alignment.
[00:21:23] Um, and you know, you have the whole GTM. I think Sangram talks about, you don't have a sales problem, you don't have a marketing problem, you don't have a CS problem, you have a GTM problem. Um, tell us a little bit more about that, right? Why, why do you believe is alignment? Why is it so important to run an efficient shop at the end of the day?
[00:21:38] Sam: Well, it's what we were just talking about, which is that, um, you have to, you have to have a conception, you know, to, not to be, like, too profound and not to be too abstract, but you have to conceptualize what's happening with your customer, uh, in a way where everybody can speak the same language, where everybody has the same set of data.
[00:21:57] That, for, the reason that it's important is because if you don't have the same data... and you don't have the same conception of the customer, then you will, as we've just talked about, gravitate towards new business as the remedy to all of your problems. And it's even happening in my , it's happening. Uh, there's a conversation today in my company that, that is very similar to the con the type of conversation, uh, that we're having right now.
[00:22:22] So why is alignment important? It's important because alignment is the only thing that puts the right emphasis on renewal as the logical outcome. Of, of doing the thing that makes the customer actually, um, you know, valuable to you and to them, right? And what does, what does that mean? It means that selling a deal is not useful to the customer, right?
[00:22:45] It's, it's only useful to you. Renewing the deal demonstrates that the customer agrees with you, that the solution you've provided is valuable. And that's why I'm saying it's, it is, um, it's a bit of an abstraction, because the point is, we're trying to build things that are actually valuable to people, right?
[00:23:01] And there's no, and that's kind of where we get twisted, because with a lack of alignment, you're solving inevitably for your value, but not their value. And over the short term, and sometimes it's very short, right, it's like, over two days before the quarter ends, that number looks good. But over the medium and long term, the only way to build a sustainable long term business is to deliver ongoing value to your customers.
[00:23:25] That's the point, that's for me the point of Klaviyo, of their S1. Which is that, if you look at, you know, their ACV is 5, 000, they have 134, 000 customers, and yet they have 114% net revenue retention. 114 net... Revenue pretension on SMB deals like that is absolutely amazing. It's absolutely and what does it mean?
[00:23:48] What does it mean when you read that thing? Because sometimes I was reading the S1 and it was like, what the hell are they talking about? Data layers and applica and I'm not a technical person. Here's what it means. It means that their Klaviyo helps their customers make money. That's what it means. That's what it means.
[00:24:01] It works. Whatever it's supposed to do, it works. It sends you a text message at the right time. And fundamentally, we have to get back to that idea. And that's what Jacco talks about. If you want recurring revenue, you need to deliver recurring impact. And your customers will tell you if you're delivering recurring impact.
[00:24:17] And if they're, if they're saying that there's high churn, they're saying you're not delivering recurring impact. And that's what you have to do if you want to build a big business. And that's why alignment's important.
[00:24:28] Mikkel: So, I'm also just, one of the things we'd like to do every now and then is get a bit more practical as well with, with this stuff and especially alignment, I think is, it's one of the subjects that gets a lot of coverage, um, but what do you do at the end of the day if you have a VP marketing and a VP sales that aren't agreeing, right?
[00:24:46] Um, because part, part of this alignment exercise also happened in, you know, when you're down and executing. So I'm curious how you see that with the different teams and folks you talk with.
[00:24:56] Toni: Or to his point, maybe, you know, a VP sales that, um, is not delivering customers to the VPCs that they can renew, right?
[00:25:03] I mean, there might be, maybe, maybe the, the, all the focus on, you know, sales and marketing alignment is starting to be a moot point. It's actually going to be more about, uh, newbies and existing business alignment. I don't know, maybe I'm foreshadowing something here.
[00:25:17] Sam: Well, again, alignment doesn't just mean two departments. It means probably four or five departments. It means product, market, sales, marketing, customer success, and maybe rev ops. So, you know, what do you do if they disagree? Well, I mean, I think that's some level of constructive tension is important. I think incentives are, the first thing we need is a common data layer, right?
[00:25:37] Like the first thing we need is like you, nobody can have their own set of data. That's different. From, you know, you can't have an ARR number that's different from my ARR number. You can't have a churn rate that's different from my churn rate. We all have to be using the same data and agree that it's the right data.
[00:25:52] So that's thing number one. And we need to have the same terminology and the same, the same funnel. You know, Jacco calls it a bowtie. But the point is we're all using the same methodology. We're all talking. So at least, at least we can have a conversation that starts from an agreed set of facts. That I think is the most important thing.
[00:26:09] And then I guess when it comes to disagreement about maybe it's what's the right way to build pipeline. Well, I think that's the purpose of, you know, healthy debate. And then you need a decision making process where, again, but referencing data. The thing that I think what, you know, when I personally gotten in trouble it's because and I get these questions a lot.
[00:26:27] How do you convince the CEO that marketing is more important than sales or that or to make some of these changes or not to hire so many account executives? Well, one of the ways to definitely not convince the CEO is to, um, is to use emotion, right? And to get angry or to make it about personality. It's not about personality.
[00:26:46] It's about an objective view of the facts. That's what I would say. And I, and, and if I am the CEO... overseeing or trying to broker a conversation between sales, marketing, CS that isn't productive, I'm going to go to the facts. And then I'm going to try and then there's probably an incentive structure that hopefully drives a little bit of alignment.
[00:27:05] So that might be that there's a that some meaningful portion of their bonus or their quote unquote commission. You know, one of the best ways to push a VP of sales out of alignment is to pay them monthly commissions. You know, like, then you're gonna get what you pay for, which is monthly, and especially monthly commissions on new business.
[00:27:26] If you want to pay for monthly new business, uh, commissions on new business, you're gonna get lots of shitty deals. And if you pay on... Aggregate retention, or you pay on all of the executive team aligned against an ARR target which obviously includes both new business and retention. And then from there you cascade down the metrics of the funnel to the individual department heads.
[00:27:47] So you say, okay, yes, the executive team is comped on ARR in total, but the director of CS owns retention, the director of demand gen owns new business ARR. This is the number, there needs to be accountability. I think that's where it starts, and then it's like, oh, well, we should go to this trade show. No, we shouldn't.
[00:28:05] Okay, well, like, that's, there's never going to be perfect agreement on those kinds of conversations. But I think if you have the same set of data, you have a high chance of getting to the right answer.
[00:28:14] Toni: So we'll have, uh, a bunch of RevOps and CRO folks, uh, listening and especially for, the, the RevOps conversation, right? So when you talk about data and alignment, it, uh, it almost lends itself a little bit to this topic. So what's your, what's your perspective on revenue operations, helping with data, which is the, uh, so alignment, which is to a degree derived from, uh, from data and so forth.
[00:28:36] What's your, what's your perspective on that?
[00:28:38] Sam: Yeah, uh, uh, RevOps is critical. there's a world where every department has their own operations person. And they report to the head of that department. And I think that's probably a mistake. I don't have an opinion on should RevOps report to finance, but I can understand why some people would want that.
[00:28:58] What I know is that you can't have, I want one source of data. I don't, you're not allowed to have a churn number that's different from my churn number. We have the same churn number. That's the most important thing. And that's why, and I would say that in this aligned world, the profile of the leader... Uh, is different and might come from RevOps more than it ever has.
[00:29:20] It might be that the Chief Revenue Officer or the Chief Commercial Officer originally comes from RevOps in a way that wasn't seen as acceptable before because they never carried a bag or they were never an account executive. But the person that understands how all the different pieces of the business fit together, which often is also the CFO.
[00:29:38] So, that person tends to be more valuable than just a person that can rally the troops to hit a specific number.
[00:29:45] Mikkel: Yeah, I think that's, that's actually pretty interesting also because we've talked with a few folks about this area where, you know, there's, there's a lot of thoughts around this, this particular topic where we, uh, we chatted with Chris Walker, for example, and his point was, it's really hard to weigh in on the go to market when you don't have the practical experience.
[00:30:04] But then, you know, we VP of revenue operations at, uh, HubSpot who said, well, you know, I'm a curious person. I'd like to go and learn. So we'll build
[00:30:14] Sam: That's the
[00:30:15] Mikkel: Somya,
[00:30:16] Somya,
[00:30:17] Toni: yeah. So we didn't, we didn't talk to the SVP. We talked to someone else, but, uh,
[00:30:21] Mikkel: yeah. So I think it's just, um, I think that's, that's super interesting.
[00:30:25] Um, I kind of lost my trail there for a second though. Yeah. That happens.
[00:30:30] Sam: Well, I think your point is like maybe leadership can come from RevOps as opposed to just the functional area. And, and that's where, yeah, I, you need somebody that can, that can, um, yes, you need to be able to lead a group of people and motivate a group of people, but what you really need is somebody that understands how the business works.
[00:30:48] Mikkel: So one of the things you said earlier, Sam, around what specifically happened with, uh, building an efficient go to market is people create smaller teams and outbound.
[00:30:56] you know, isn't working. Why do you think actually we, we got there? Was it because we were greedy and had to grow really fast? So we just accepted that the efficiency wasn't all that attractive and we build this beast of an engine. How do you think we got here? Yeah. Okay.
[00:31:12] Toni: Yeah. Next question.
[00:31:13] Sam: got here because, uh, interest, money was free
[00:31:17] and, um, and, and I've been thinking a lot about this because, you know, the first thing you can say is like, well, money was free and everybody pursued growth at any cost. Okay, but. But what, what's, how, what were we, what were all three of us, what was our mindset two years ago?
[00:31:33] And how did we, because humans are very status driven, right? And we're comparing ourselves all the time. And so how did we compare success? What was success two years ago? First one, one indicator of success was how much money you raised, right? And it was that the more money you raised That was an indication that you were, that you were better in some way.
[00:31:51] And if somebody raised 50 million from HubSpot Ventures and I only raised 25 million, then I would feel threatened. And then the, the fear part of our brains. Says, I better get as much of the market as possible, because if I let them get as much of the market, then they will grab the whole market. And I will wake up one day and not have any opportunity to grow.
[00:32:14] I will be starved out of, you know, there will be no oxygen left in the room. And that, that created an, you know, an arms race, a funding race, where everybody was raising as much money as possible, and thinking that if they didn't get To every use case, and every persona, and every industry vertical first.
[00:32:32] And we did this too, by the way. We did this. Uh, and I can give you a very specific example, which is that, um, we were an executive only community, and we were partnered with this company called Sales Impact Academy, and they were doing training for sales teams. And they were, uh, and I'm friends with the founder now, uh, but, um, we were sort of competitive.
[00:32:52] And I felt like, well, So, I know what he's doing because he's using all of the Pavilion members to teach his classes. And I don't need, why do I need to go through him? I can build that business too. Literally that was my thought. I can build that business. And I did build that business. Very expensively.
[00:33:08] And, and, um, and then, and you know, neither he nor I knew diddly squat about training and enablement as an industry category. But here's what I'll tell you. Uh, it's, We were, we were peacetime, uh, decision makers, right? Because the money was free and so, and, and everybody needed to attract and retain great sales talent.
[00:33:32] And that meant that they needed to invest in training and enablement solutions like ours, whether or not they worked. Whether or not we were actually very good at what we did. And meanwhile, so that pulled us in an entirely new direction. Right, that pull, and that, we were, we were, and as much as I lecture, like, we did the wrong thing.
[00:33:48] Right, we got distracted because there was money available and we said, we're going to be a sales training solution for SDRs and account executives, and we're going to be a training solution and a development platform for VPs of sales. And all of the VPs, not all of them, but many said, well, what are you really trying to do here?
[00:34:03] Are you trying to be... Who are you for? I thought this was like my special club to be a badass of sales. And now it feels like you want to be an SDR training platform. And I don't really want to go to like a cocktail party with SDRs. I'm trying to like meet other people at my stage of growth. And meanwhile to deliver and, and what is the...
[00:34:23] Why did we do that? I mean, again, this is sort of like a, but this is a case study in all of this excess, right? Why did we do that? Well, we did it because we, I was not thinking from values or from first principles. I was thinking this, the, the training business is a B2B business. And that B2B business will renew at 70% or 80% and it will, um, and it'll have 100 125% net revenue retention.
[00:34:47] And meanwhile, the executive business is much more like a B2C business. It's going to have 2 3% monthly churn. And so I'm going to trade executive revenue for B2B revenue and I'm going to build a more valuable company. And, uh, what actually happened? Turns out, the trading business doesn't renew. Better. It renews worse and it renews worse because it doesn't work that well. As we all know, watching a bunch of videos doesn't make somebody an expert at doing that thing. And it diverted our focus and it was expensive. And so all of the economics that were supposed to be better actually turned out to be worse. And that's why today we are really triple focused on executive community and moving slowly out of, uh, you know, build being a training platform for SDRs.
[00:35:32] Toni: so, I mean, and this is, you know, you can, you can decide whether or not you want to answer that question, but I feel some of those decisions actually came around or after you raised the 20 million. Right. So I think, I think this is when you started to open the doors to SDRs and, you know, did all, I don't, I don't know all the details by the way, but was this basically kind of also part of the, uh, the business case in order to raise that, that money to kind of say like, Hey, we're going to expand the TAM.
[00:35:56] We're going to have all of those roles in here. We're going to charge all of the money. We're going to add this other thing. Was that part of your thinking actually to, um, to raise those funds?
[00:36:04] Sam: It's sort of like all happened at the same time, but you're not wrong that it, and, and the other, why did we change the name from Revenue Collective to Pavilion? Well, it was because like, oh, this idea works for salespeople. Why can't it work for HR leaders and legal people and anybody? And so I'm going to build the largest community of professionals in the world, and it sounds nice.
[00:36:27] Toni: Mm
[00:36:27] Sam: But the, and it might be nice one day, right? But like, the whole thing was like, hey dude, you know, at the time we raised the money we were at four million in ARR. Like, why don't you sell all the salespeople first? Why not just sell all the salespeople first before you do the thing for HR? Because you don't know anything about HR and you're probably not going to be very good at it.
[00:36:49] So, let's just, and I had this conversation this year, right? In January of this year, I'm driving down the Long Island Expressway in New York and I'm talking to my friend Andrea Kyle, who is a CMO. Now she's a CRO, but she's a long time CMO of Electric and Signpost and a bunch of other businesses. And she said, tell me about your TAM.
[00:37:07] And I said, I think there's about 60, 000 to 80, 000 VPs of sales, marketing, CS, rev ops, and CEOs and founders of B2B SaaS businesses. Zero to 50 million ARR in North
[00:37:17] America. Um, because there's about 15, 000 companies, figure four people per company. And, uh, and she's like, and how many do you have? I'm like, we have about 4, 000.
[00:37:26] And she's like, so why are you doing anything other than getting the next 4, 000? And I'm like, yeah, I don't know. I wish, I wish I'd spoken to you two years ago.
[00:37:36] Toni: So you, and previously, so you, you, uh, you're a VP of sales originally, originally, quotes. and then kind of previously you said like, Hey, marketing is the best way almost, you know, one of the most efficient ways to grow the company. How did that, how did that change come about actually?
[00:37:50] How did you go from. and you know, how, how did you, how did you get to that point of realizing, Hey, that's actually, that's the, the most efficient growth lever to, to pull and that's, that's the one you should be pulling.
[00:38:02] Sam: I've always, I've, uh, that came, that was, um, I've believed that for a long time. I believe that for a long time. I wrote, the first time I, like, meaningfully put content out on LinkedIn was in 2017. And um, here I can post it. It's called The Wrong Way to Scale. People should look it up. Uh, Sam Jacobs. Let's see if it, um.
[00:38:25] And when did I write it? June 29th, 2017. So I was working at The Muse, and it was because I'd worked at this company Axial and Livestream, and I just made this mistake at Livestream, where they had all of these leads. And, um, I, and I was like, oh, look at all of these leads. And I can explain why they were not leads, but they, I didn't think that through.
[00:38:45] So, I was like, look at all of these leads. I can hire like 15 salespeople and just triple the business. And so we hired all of these salespeople and the business didn't move. It didn't move at all. Why didn't it move? They weren't really leads. They were people cancelling and then re signing up monthly subscriptions because they were using the product for one single event and then cancelling it afterwards.
[00:39:09] And the idea that this was ARR in the first place was like a total myth. It was not ARR. It was one time purchases that were presented as ARR because it was better to present things as ARR. And so that's when I, I wrote that article to say, Hey, stop hiring all these salespeople. And for the, and, you know, I ran Pavilion full time from 2018 to 2021.
[00:39:30] We didn't start building a sales team until really, uh, the end of 2021. And, and after we raised the money and then we were pursuing this B2B opportunity, the whole... We'd grown from word of mouth and from high Net Promoter Score the entire, the entire time of our whole existence. And it was only in the last two years that I'd gotten turned around, you know, turned around.
[00:39:53] And, and did raising the money turn me around? Yeah, it did turn me around a little bit. And I went from, you know, everybody went from... Hey, isn't it nice that I get to have a company, too? Maybe I'll be a billionaire. You know, like, should I buy a private plane? Like maybe I, why does Richard Branson get an island and I don't have an island?
[00:40:11] I want an island. And that, you know, it was a sickness and I'm recovering from that sickness.
[00:40:18] Mikkel: So I think one of the interesting things here is also like you, you, now that you talked about sales, it just got me thinking in relation to go to market. You also. Have certain motions running or need to build new motions and in particular with the shift we've seen as of late is that people are, you know, scaling back the teams and have smaller teams usually it's because they knew something was wrong or broken, right?
[00:40:39] So how, like, what are some of the signals you, you've picked up on that, hey, this motion is just not working? Is there some wisdom there to share potentially now for the listeners?
[00:40:50] Sam: Sure, well quota attainment rate. I mean, what, you know, like let's just look at your it There's certain businesses that it does work for right and I and I'm sure there are businesses that are growing I think cyber security is growing really nicely right now in this economy and companies like Thoroughpass or Vanta are doing great But your your your metrics will tell you if things are working or not working, right?
[00:41:10] So, you know and I have the the data would be you know First of all, here's the data that we've seen, right? Uh, close rates are, uh, sales cycle length is up 30%, right? Average deal size is down, close rates are down, and only 30%, I think the number is 28% of reps are hitting quota. So again, if people modeled that, great, but most people didn't model that, right?
[00:41:36] So that would indicate something's not working, right? The other way to, like, figure out if your go to market motion is working is like, let's, I call it the calendar test, right? Open up the calendar of your reps. They should be having three Let's say three is a lot. Three outside meetings a day, right?
[00:41:56] Fifteen during the week, right? That's a busy rep. That's a pretty busy rep. A mildly busy rep, ten meetings a week, right? How many meetings? And you know, don't, no, no daily huddle. No going to the doctor. No blocked for deep thought. You know, how many customers are they talking to? It doesn't have to be new business.
[00:42:15] It doesn't have to be net new opportunities, right? It can just be like, how many times are they talking to people that don't work at your company for the job that they're supposed to do, which is bring in more money? And if it's less than 10 times per week, Then don't hire any more people. You don't have anything to give them and I've seen so many so anyway That's we we know that that's the symptom.
[00:42:34] That's the indication that things aren't working is falling win rates and and I think but again, there's certain people that are good in this environment and that's the difference between peacetime and wartime or between If you don't want those metaphors, uh, you know, good, hard, and easy, right? And there's people that can succeed when things are easy, and there's fewer people that can succeed when things are hard, and that's okay.
[00:42:55] And that doesn't mean anybody's a bad person. And I, the last thing I would say, though, to your point, and to Sangram's point, cause he'll say every new motion. That's a new investment. It's not so easy to snap your fingers and say I'm going to do PLG now, or I'm going to do community led growth now, or I'm going to do partnerships now.
[00:43:15] Um, so you just have to be, you have to understand that if you're making a new investment, You're not going to have predictability around that investment for some period of time because it's new, it's different, and it, and it is an experiment, and you're all, and that's, again, is problematic for people because that means that you have excess capital to fund experiments that are going to hopefully lead to some more productive uses of capital, but anybody thinking that we're just going to go to PLG and it's going to be awesome,
[00:43:42] Toni: Hmm. Yeah, we have, and I think, um, I think, uh, inside partners and I'm not sure how else probably, you know, wondering about design as well. I think they're just, you know, released some research on PLG actually spending a lot on sales and marketing compared to sales. There's a, there's a whole new kind of worms to unpack, but you know.
[00:44:00] If, if we take a step back and, and try and, uh, look forward for a second, right? So, I mean, there's, uh, number one, I think a couple of holdouts are still thinking, Hey, this is just a dip. We're going to go back to the heydays. Um, you know, the majority is coming around. Hey, that was a correction. And that's kind of how we need to live now.
[00:44:17] first of all, I think I can guess in which camp you are, uh, but what do you think will be the result of this, right? I'll be, , trying to do, community led growth, uh, and, and go back to events and, uh, and, and send, you know, a direct mail. Well, what do you, what do you think is going to happen in the next couple of years to, to all of those go to market motions?
[00:44:35] You know, how, how is that whole transformation gonna, gonna end up, uh, landing in the end, in the end, in the next five years? I don't know.
[00:44:45] Sam: I don't think it's going to go back to the way it was because I don't, I just don't, the first answer to your question is I have no idea. The second question is, um, The world of large sales teams for mediocre products, I do think is over. I think great products, Klaviyo will have a large sales team. Big enterprise companies that can close seven figure deals, where they have, they understand the economics of why they need sellers in every zip code.
[00:45:19] Those companies, and there are companies out there, they will have sales teams. But I think most companies... Here, here's what I really think. I think most companies will become smaller and there will be many more companies. And, and I, and I don't have any, here's what I mean. I have seen more people, more of my friends.
[00:45:40] My friends, more of my friends who are non technical, more of them have started their own businesses in the last 12 months than at any time in the last 15 years. Now, there's a bunch of confounding factors. I'm old, we're all, my friends are getting older, right? So like, it's time for us to start businesses.
[00:45:57] But, even... You know, uh, there's a guy named Mark Colleens. He was the CMO of Airmeet. He just started his own company. This guy, Andrew Newborn, uh, who was the SDR at Outreach, who's funny and kind of irreverent, he started his own company. My friend Mike Hoffman started this company called PathSight. My point is with generative, generative AI means that you can, that the chat GPT, the open AI API is natural language.
[00:46:22] You don't need to write. You don't need to code in Python, or React, or JavaScript. You don't need to know any of that stuff to talk to the OpenAI API. Right? Programming and engineering will become natural language, which means that anybody can do it, which means that, and I don't know what that means for the venture capital industry, because what I really think, and this is to the point of Insight Partners cutting their targets for their new fund, as well as I think Tiger also cut their, their, I don't know that, I don't know that how this will all, I think Jason Calacanis and seed stage investors and early stage investors will have a lot of checks to write.
[00:46:55] But I think that the TAM for those companies will be much smaller because they're just going to be a smaller number of people running what are meaningful businesses. I think Justin Welch started all of this when, you know, he started creating content on LinkedIn. But, but for him, solopreneurship means, like, how to coach people to create content.
[00:47:12] And I think there's going to be far, far more use cases in the future for solopreneurs to build. There's a world where I could run my whole business with probably like five people and just be a LinkedIn influencer talking about go to market without really ever, you know, practicing any of the things that I talk about.
[00:47:27] So all of that's a long winded way of saying that... I don't think that we're going back to the world of do hundreds and hundreds of salespeople at 20 million a r r companies that, that have 80% net revenue retention and where only half the people are hitting quota. I think that world is probably gone for a long firm for a long time.
[00:47:47] That doesn't mean company formation is gone. I think company formation is gonna go way up. I think the world is far more interesting and I think that generative AI plus a lot of the advances I, I still think. There's so many technological advancements that are going to drive human productivity that I'm still incredibly bullish on the market, right?
[00:48:06] Like on, on, on human productivity outpacing other deceler you know, deflationary forces, right? On, on the world getting better. For more people. I, even with climate change, uh, and in fact, climate change will trigger all of these amazing new companies to be started around, you know, and you're in Denmark, so, uh, you know, like obviously farming and food production, uh, with much lower, um, you know, much lower inputs and, but also carbon sequestration.
[00:48:32] I think we're going to, we're going to adapt to climate change. It's going to be a really painful 50 to 50 to 100 years, but I think we're going to emerge. And yeah, the world will be geo engineered and, you know, like, we'll be messing with the atmosphere and doing weird stuff to it. But I think all of that is productivity for the human race.
[00:48:50] Um, so what does all of that mean? That means that
[00:48:54] Toni: I think that was a fantastic view into the next five to 500 years. Sam, you know,
[00:49:00] Sam: main thing we need, but I'll leave you with this, uh, silly comment. The main thing we need is more babies. That is
[00:49:06] what we need.
[00:49:07] Mikkel: Well we are working on, we've worked on it, done not, not working on it, and we've worked on it
[00:49:11] Sam: you guys have?
[00:49:12] Mikkel: the
[00:49:12] Toni: two of us with one another. By the way. It's like, I think what we are five, five kids between the two of us, right? Yes. Yeah. Yes,
[00:49:18] Sam: Alright, well you're doing, I haven't started yet, so I'm, but I'm going to have, everybody need, I, so my hot take, my hot take, which I said on Topline, is that in the future, you'll be able to order babies that will be grown in labs.
[00:49:31] Toni: And that's Sam Jacobs for you from Pavilion.
[00:49:35] Mikkel: I didn't know we also did banter at the end, but like, I'm kind of loving it. I'm not against this. This is great. Sam,
[00:49:41] Sam: Yes.
[00:49:42] Toni: thank you so much. Thank you so much for being here. Pleasure to have you. Thanks so much for talking about GTM and some of those details, but also kind of broadening this a little bit out.
[00:49:49] I think this was fantastic. Thank you for spending the time with us.
[00:49:52] Sam: Thanks for having me, I appreciate it.