Ep. 30 Hero Ep30 Mark Suster

Decoding Product-Led Growth: Mark Suster on Viral Software


25 min

Ep. 30 Hero Ep30 Mark Suster

25 min

A product that people can't resist using is the dream for any enterprise technology startup. After all, it's how today's biggest B2B companies, like Slack and Zoom, became household names. How do you create viral magic that drives product adoption? In this episode, veteran investor Mark Suster shares his approach, and what to do if a product-led growth strategy isn’t working.

Read transcript

“What does it take to be an entrepreneur? All it takes is a bit of stupidity, a bit of stupid blind belief in yourself and willingness to work for free.”

Quick takes on...

Understanding Product-Market Fit

“I would rather you have no influencers. I would rather you have no hype. I would rather you raise less capital and obsess with what is the product feature that's really going to resonate with a group of people, like the raison d’etre. What is it that they're waking up every day to use your product, to do and why your product and not other stuff.”

The Value of Sales and Marketing

“At the end of the day, sales and marketing really matter. And it turns out that people buy products for reasons other than, this is the absolute best product in the market. They buy products for the perception that this is going to help them improve.”

Committing to Being an Entrepreneur

“We're looking for people who want to go on a 10- or 12-year journey with us. We're not looking for people to go on a two-year journey. So you've got to want to do this. This is your career. This is your livelihood, your life, and your mission. And if you're successful at it, you're going to be hugely financially and emotionally rewarded for doing it.”

Meet your guest, Mark Suster

Managing Partner, Upfront Ventures

Spotlight Mark Suster

Mark Suster is Managing Partner at Upfront Ventures. He previously was the founder and CEO of two successful enterprise software companies, the most recent of which was sold to Salesforce.com, where he then became Vice President of Products. Prior to being a founder, Mark was a software developer at Accenture where he lived and worked in Europe, Japan, and the United States. Mark is a graduate of University of California, San Diego, and has an MBA from the University of Chicago.

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Ep. 31 Home Ep31 Jennifer Byrne

Decoding Enterprise Transformation: Jennifer Byrne on Change


25 min

The larger an organization gets, the harder it is to drive change. How can individuals have an impact? Jennifer Byrne has some answers. As the former CTO of Microsoft US, Jennifer has first-hand experience leading transformation at global companies. In this episode, she gives practical advice on driving change, including how to build trust with large customers.

Episode transcript

[0:00] [background music] Mark Suster: …

[0:00] [background music]

Mark Suster: [0:06] I would rather you have no influencers. I would rather you have no hype. I would rather you raise less capital and obsess with what is the product feature that's really going to resonate with a group of people like the [inaudible] . What is it that they are waking up every day to use your product to do? Why your product and not other stuff?

Daniel Saks: [0:31] That's Mark Suster, Managing Partner at Upfront Ventures, a leading venture capital firm based in Los Angeles, California. As part of Upfront, Mark has led investment rounds in a range of both business and consumer focused startups, including Bird Scooters, ChowNow, Inovcar, and thredUP, which went public in March of 2021 at a $1.3 billion valuation.

[0:56] Before entering venture capital, Mark was the founder and CEO of two successful business enterprise software companies Build Online and Coral, which was acquired by Salesforce.com. Mark also has a popular blog called "Both Sides of the Table," where he shares advice and relates perspectives from both investors and startups.

[1:16] In this episode, Mark talks about why an innovative product roadmap is so important. Why he believes location is more important than ever as we enter a work from anywhere in the world. This is Daniel Saks, Co CEO of AppDirect. It's time to decode product led growth.

[1:33] [background music]

Daniel: [1:38] Welcome to "Decoding Digital," podcast for innovators looking to thrive in the digital economy. I'm your host, Daniel Saks. I'll sit down with other founders, CEOs, and change makers to decode the trends that are transforming the way we work. Let's decode.

[1:55] [music]

Daniel: [2:01] Mark, I'm so excited to have you on Decoding Digital.

Mark: [2:04] Thank you. I'm happy to be here. Thanks for inviting me.

Daniel: [2:07] You began your career as an entrepreneur. You launched two companies that were acquired. One of them by Salesforce. Then, you moved to your current role as Managing Partner at Upfront Ventures, a VC firm based in LA. How and why did you make the jump from entrepreneur to VC investor?

Mark: [2:24] It's interesting question. You'd like to think that everyone in their career knew exactly what they were doing and made very purposeful decisions. We all tell stories in reverse that make it sound like that, but it's seldom the case.

[2:37] Let me tell you what actually happened is I had sold my company to Salesforce. I was VP of products. I was talking with Mark Benioff about a much more senior role at the company in the long term. I was seriously considering it, but at heart, I'm an entrepreneur. It seemed like maybe there was one too many Marks at Salesforce.com, and he was the real Mark. Hats off to him for what he's achieved and what he's built.

[3:01] I just thought I wasn't done with my journey, so I called my VC firm that had backed both of my startups. I had worked with Eve Sistero at the time for eight years. Eve is French but has lived most of his professional life in the United States.

[3:17] He was a great mentor to me. I said, "I want to go to another company." He said to me, "Have you ever considered venture capital?" I said that I had. Back then, most VCs didn't want entrepreneurs. Most VCs that were reaching out to me were talking about EIR roles or operating partner roles. I just thought, "If I'm going to do VC, I want to really be an investor."

[3:41] This is 2007. My mentality at the time was, "If I'm not great at being a venture capitalist, I can always fall back to being an entrepreneur because what does it take to be an entrepreneur?"

[3:52] All it takes is a bit of stupidity. [laughs] A bit of like stupid blind belief in yourself and willingness to work for free. I'm stupid enough to believe in myself and work for free for a period of time. I thought that's a pretty good fallback for me. Truthfully, I thought I'll give it a shot for two years, and if not, I'll go back to being an entrepreneur.

[4:13] I know you didn't ask this, and I'm sorry for a long answer, but just to say, what I was thinking at the time was I was 39, and I'm now 53. At 39, having done two software companies. Having started my career as a computer programmer. Having done that, I thought my analogy is basketball.

[4:34] At some point, you're just not as fast as the next guy. At some point, you just can't hit the three point shot with time running out. If you can, you want to be on the court. I loved being on the court.

[4:48] I loved every minute of it, but having played the game for more than a decade. At some point you, realize I might be a better coach than player. I had that mentality of, "Let me see if I can coach." I've enjoyed every minute of that.

Daniel: [5:05] I know that you started your career in enterprise software development. Then, you started enterprise tech companies one sold to Salesforce. I know in your VC experience, you're very focused on consumer tech.

[5:16] One of the things I'm always impressed with you by is that you're also an early adopter of a lot of products and technologies. At one point, you were a power user of Snapchat and one of the most followed Snapchatters. Wanted to get a sense of your perspective on what consumer tech people can learn from the enterprise and vice versa?

Mark: [5:35] Well, let me first say why I try to use as many tools as I can. Stating the obvious, I grew up a programmer from the age of 13. It's just how I'm wired. I'm very left brain, and I enjoy problem solving, and computers scratch that itch. What I like to say is imagine you want to be an artist.

[5:57] Let's say you want to make pottery, and you don't have a feel for the clay. The only way that you can pass judgment on what you think of video, audio, what you think about how to deal with creators, creator tools, how do you get marketing and distribution, and what is consumer behavior look like? You need to play with the clay.

[6:18] I don't have to be the best person in every platform. I have to have intuition for it. I took a call yesterday from a talented young entrepreneur. He's building in the audio space. He had a good deck, and the deck was vanilla cookie cutter. It was total bullshit. Honestly, I called bullshit on it.

[6:41] I said, "This is exactly what the traditional playbook will be for a deck. I'm going to get these followers. These people using my product, and they've got millions of followers. Audio is going to look a little bit like this is the audio version of TikTok. TikTok then came after Instagram, and before Instagram was Twitter. Now, this is the natural next extension."

[7:03] I said, "I don't think that's true. I don't think you have a true north. Your true north has got to be, what is unique about audio? How and why do we use audio? How do I discover audio? How do I engage with audio? How does the fact that I have an air pod in my ear make this a different medium?"

[7:20] If you're just going to say, "Well, Twitter worked this way, and I'm an audio Twitter," you're not going to win. You're not going to win just because you get a bunch of influencers to use your product. I have that intuition because I've used every audio product and because I've experimented with building with some of our team's audio products. I've watched how users have built them.

[7:42] Now, I might be wrong. I'm not always right, but I have intuition. You only get intuition from playing with the clay. What I would say to you about enterprise because I know that was a large part of your question. In the era I grew up in, it was top down selling. You go, you get decision makers, they hold budgets, they sign large deals, and then they tell groups of people to use product.

[8:04] We know most enterprise sales these days work through what people call PLG, product led growth. Their idea is simple. One is you get masses of people using your product. Then, you find ways to mobilize groups of people using your product to build it into an enterprise sale.

[8:22] The first big company that I know of to accomplish that was Skype. I watched Skype spread across Europe when I lived in Europe. I just couldn't believe like every enterprise tried to kill Skype.

[8:35] They tried to say, "Oh, it's not secure. I don't want to buy a license. Let's get this out of here. How did this get all of...?" It was like a virus spreading across companies, but it was just too powerful for anyone to stop. People had to then say, "OK, we got to find a way to make this work." That's how Yammer grew. That's how Slack grew.

[8:52] There's a lot of power to it, which is what about if we had tools that masses of people wanted to use because they were so well designed that they made people more productive rather than a senior top down person imposing them. That's where we're at. That's where the crossover between enterprises and consumers is.

Daniel: [9:11] I love the concept of product led growth and want to decode that for a second. I can understand as an entrepreneur, your plan A in the 10 slide deck that we're sending to you is going to say, "Hey, this is going to spark virally. There's a great viral coefficient. Everyone's going to use it."

[9:24] As we know, as entrepreneurs, your first attempts often don't turn out like the next Slack. What's the plan B? Is it pivot to an enterprise sale, or is it iterate?

Mark: [9:36] The reason I like enterprise is exactly what you're saying. I remember years ago, I had dinner with Mark Andreessen and he said, "I like to do enterprise A and consumer B."

[9:48] I said, "Why?" He said, "Well, look at the end of the day, there's no way that I can manifest success of a consumer company. Either consumers love the product, or they don't. Whereas with enterprise, I can call a bunch of CTOs and CIOs and at least get the initial implementations going."

[10:05] There's a lot of truth to that. With consumer products, it's hard to manufacture success. It's either it just lights a fire, or it doesn't. I'll tell you my advice to this founder yesterday, who I'm going to spend more time with. He's in the right zip code, just maybe with the wrong product.

[10:21] I said to him, "I would rather you have no influencers. I would rather you have no hype. I would rather you raise less capital and obsess with what is the product feature that's really going to resonate with a group of people like the [inaudible] . What is it that they are waking up every day to use your product to do? Why your product and not other stuff?"

"[10:46] Until you solve that, no amount of hype is going to help you. In fact, hype will work against you because if you get a bunch of press, and a bunch of hype, and a bunch of people using your product, and then 60 days later, they don't want to use it because it didn't really solve the fundamental need, you've set yourself up for failure."

Daniel: [11:02] In terms of product led growth, what do you look for in a C or series A investment that would give you a sense that there is this viral coefficient or product lead go to market?

Mark: [11:12] I always say I'm looking for three things. Number one, I'm looking for, let's say, the elusive product market. The second thing I'm looking for is founder market fit. The third thing is founder upfront fit. Product market fit, I don't get a wait for that. I've got to have an assertion that I believe there can be or will be product market fit.

[11:32] How do I decide that? I have to believe at a unit economic level, individual, user, or payer that you are going to add significant value to their job. Unless I can identify what real pinpoint you're solving and why that's going to make a huge difference on a unit economic basis, I probably am not writing the check.

[11:55] I've got to have intuition. Not how you're going to charge, but why this is fundamentally going to make a difference for them. Let's call it assertion of product market fit. In the old days, I could wait. I can't wait. I don't write $50 million checks on a 250 pre anymore. I never did. When you have a product market fit, that's what happens.

[12:16] The second thing is founder market fit. I need to understand why you're doing this because there's a lot of people who enter the markets because they think I should be doing a startup, and this sounds like a good idea. Why are you driven to do this? What intuition do you have about this market or these users that other people don't have?

[12:33] You got to be super driven to make that work. I would say that's the second. Then, founder upfront fit. We're looking for people who want to go on a 10 or 12 year journey with us. We're not looking for people to go on a two year journey. You've got to be wanting to do this. This is your career. This is your livelihood, your life, and your mission.

[12:53] If you're successful at it, you're going to be hugely financially and emotionally rewarded for doing it.

[12:59] Now, along the way, sometimes people call us, and they say, "Hey, I got this offer. I think I need to take it," or "Look, I've been doing this for two years, and I don't think it's working. I think I need to kind of pivot or shut it down."

[13:11] We accept that that happens, but going in, we have to believe that you have the right intentions

Daniel: [13:17] On the point of product led growth, I would assume that every company, whether you're a startup or whether you're an enterprise wants to say that your product development is going to drive product led growth, but in reality, what percent of products do you think ended up being driven in a product led go to market versus a sales first go to market?

Mark: [13:36] Look, you know the old saying when you're a hammer, everything looks like a nail? Every product person I know believes that product is the only thing that matters. Of course, I don't believe that. I believe great product is incredibly important. Let me just switch it to make it less emotional.

[13:55] There's no amount of killer marketing or amazing design you can put on a restaurant if you're shitty food. You need to start with great food. Does it have to be the absolute best food in Los Angeles? The best food in New York? No, it needs to be great, and it needs to speak to a constituency.

[14:16] There's a constituency in LA that wants to eat $12 Korean food. That's very different than Raspoutine that was the top rated restaurant in Los Angeles that's currently serving fried chicken with caviar on it. [laughs] Those are $125 versus $12. Product can be different. Market can be different. Quality can be different. At the end of the day, sales and marketing matter.

[14:44] It turns out that people buy products for reasons other than this is the absolute best product in the market. They buy product for perception that this is going to help them improve. How many people have Slack that are truly getting great productivity out of Slack?

[15:04] Probably 20 percent and 80 percent have it, and they don't know how to be the best productive Slack user or the best productive Notion user or whatever. That comes down, to me, to marketing. At the end of the day, I've got to create a desire and awareness for a product and identity with people wanting to buy it because they see other people model behavior.

[15:27] It starts with marketing. Look, I know most people have found businesses are either product or finance people that are super analytical types that think we should abolish sales. The reality is sales exist for a reason. Salespeople are incredibly important. Their job is incredibly important.

[15:45] Without a sales rep who understands organizational behavior, organizational design, decision making, budgets, how are budgets approved? How are they decided? How do you navigate that? How do I leverage relationships to get enterprise sales done? How do I price the value rather than lowest common denominator? How do I do ROI calculators?

[16:04] All those things that are incredibly important to a sales process that most of Silicon Valley traditionally undervalues, it's incredibly important. You asked me a question, and I've given you an incredibly off topic, long answer, but I believe in all of the above. I believe in having great food, but it doesn't have to be the best food.

[16:26] Has to be great food well marketed and people have to enjoy their experience. They have to identify with coming to your restaurant and being happy with it and want to tell the world the viral coefficient. You want them telling them what a great experience it is, even if they are not sure why it was.

Daniel: [16:45] I totally agree that customer experience is super important, but I also think that segment is your pick on first target super important. For example, we sold around an enterprise customer, a big telecom in Canada, and we worked a year to launch it another six months to a year to make it happen. We put it all in, and in the end, they didn't get it going the way we had anticipated.

[17:08] Then, we were back to square one pitching the next cohort of customers. Eventually, it took off, and we were able to iterate. One of my lessons was what we went single threaded with the business could have gone under in many ways in that one year just because we picked the wrong first customer.

[17:22] How do you think about that balance of focusing on the customer experience but also making sure that the first cohort is applicable to prove or not division?

Mark: [17:31] One of the talks I give a lot to entrepreneurs is, I call elephant, deer, and rabbit. My analogy is this. Elephant is a big enterprise customer. It's the logo you want. Let me just call it this. Say you could serve Facebook. Let's say it's one of your first big customers. Is that a good idea?

[17:52] Well, if you're a startup and you've raised 3 million bucks, and you have $300,000, ARR landing Facebook is a curse because their relative leverage to you is extreme. They are going to have huge requirements. They are going to expect everything out of you. You're not going to live up to their expectation. They are going to send InfoSec on you. They are going to everything, right?

[18:15] It's David and Goliath, and you're set up to fail. What you end up becoming in Facebook and maybe you and your first iteration with the telco by the way, I learned this from doing it myself and making the same mistake is you almost become like their in house R&D department. They have the expectation that you're their in house R&D department.

[18:34] It takes you off track from trying to diversify your customer base and maybe building the feature set you should be building. Let's call that elephant. Eventually, you want elephants, but you want hell offense when you're an elephant hunter.

[18:48] Rabbits, to me, is this idea of, "Well, instead of doing all that, I'm just going to build a tool that everybody can use. I don't want to have sales. I don't want to have to deal with customers and negotiate. I'm just going to put it out there and whoever uses it uses it." Sometimes that works.

[19:04] For the most part, the problem with rabbits is you go out in a field and they are everywhere. You're like, "Oh, there's a million of these. Surely I can catch one or two." Then, you go out to catch them, and you find they are pretty freaking hard to catch.

[19:15] It's just as much effort to get rabbits as it is to get a bit more meat. You get them, and you're like, "Gosh, this wasn't really worth the effort." I usually say startups should be deer hunter.

[19:25] My analogy is really simple, which is it's probably mid sized customers that need you that never get the attention of the big player because the big player just doesn't focus on them. The big player is out serving big elephants.

[19:40] You can make them be extremely successful. Who cares that their logo isn't Facebook or American Express or Marriott Hotels or whatever, or getting a department within a bigger company where the department is making a big bet on you.

[19:57] Make middle sized people who need you make them heroes. Make them truly successful.

[20:05] I put all my eggs into big accounts. One of my biggest customers was Goldman Sachs back in the day. I didn't have a lot of revenue, and I would do anything for money because I was trying to hit my quarterly targets every quarter.

[20:16] They say, "Here's a million dollars." I'm like, "OK. Yes, Sir. Please, Sir, can I have another, sir? What do you want me to build, Sir?" It was wrong. I just think focus on being a deer hunter.

Daniel: [20:26] It's interesting because if you look at traditional business products. There's enterprise, and then there's volume, and the middle is the hardest to go to market with. If it's product led, it flips it. It's an interesting niche, if you will.

Mark: [20:40] For me, it's about building muscle because if I serve 25 mid sized companies, I service them incredibly well. They need me. They love that they get the time and attention of the CEO because these are companies that don't get CEOs on the phone.

[20:59] I also get to work out my product deficiencies. I get to work out my organizational deficiencies. How good am I at supporting roll outs? How good is my integration? How good is my 24/7 support? With customers who are going to be more tolerant when I'm cutting my teeth on everything. For me, then when you're ready to step up and serve bigger accounts, you've worked out all the kinks.

Daniel: [21:26] Last question. I know Upfront and yourself are based in LA. I know you're super invested in growing the tech ecosystem here. As we enter a work from anywhere world, how much do you think location matters?

Mark: [21:38] Location is everything. People are fooling themselves that they think all remote is here to stay. I'm a big believer in collaborative tools. I'm a big believer in allowing people to live and work how they want to live and work. I'm a big believer in flexibility.

[21:55] I had a couple people say to me, "Hey, I'm in Orange County in pandemic. Can I stay?" "Yeah, no problem."

[22:02] But, your corpus of people, there's a certain amount of creativity that comes from in person from working with other humans. There's a reason why there were so many people let's say in the middle ages, as we came out of that, and you had the Renaissance who were all gathered in places like Florence rather.

[22:20] Why Florence succeeded and created this movement in art and architecture and other fields because you had a corpus of people who are all experts sharing at the same time.

[22:33] There's a reason why you have so many innovative financial products come out of New York City, why you have so much creative energy coming out of Los Angeles, why Silicon Valley has been so successful for so long at launching startup companies. That's going to be way more distributed over time.

[22:51] The tools are there for successful companies to be built in. We've already seen it. Look at Shopify in Toronto, right? Amazing success. You don't have to be in Silicon Valley, but location matters. What you need is you need a location where you can get a critical mass of incredibly hardworking smart people who are aligned on vision to work together.

[23:16] Yes, you can tolerate some people being remote or having centers of excellence, but you're fooling yourself if you think you're getting full productivity from everybody being totally distributed.

Daniel: [23:27] Mark, thank you so much. Really appreciate the time.

Mark: [23:30] Of course. It's been wonderful. Thank you.

[23:32] [background music]

Daniel: [23:36] On the next episode of Decoding Digital.

Jennifer Byrne: [23:39] The true heroes in my mind are the folks who did the quiet work of ushering that transformation through a company. They get no credit. They are the note takers in the meetings, but they are the people who are the lifeblood of transformation.

Daniel: [23:56] Former CTO at Microsoft, US, and principal owner of Digital Future Consulting, Jennifer Byrne.

[24:04] [music]

Daniel: [24:07] Thanks for listening to Decoding Digital. Make sure you never miss an episode by subscribing to the show in your favorite podcast player. To learn more, visit decodingdigital.com. Until next time.

[24:20] [music]