Choosing Your Sales Strategy: Lighthouse vs. Landgrab

Key Takeaway

Choose your sales motion by testing two facts today: does the buyer already have budget for an existing workflow, and how risky is it for them to adopt your product? If there is budget and you can prove clear ROI, pursue a land grab: target reachable mid-market buyers and close many repeatable deals. If adoption is high-risk or requires market education, pursue lighthouse customers whose logos create social proof. Then commit 99% of effort to customer conversations and execution.

Episode Overview

Joe Schmitt and Andy examine two enterprise-AI go-to-market motions: lighthouse selling, which wins influential reference customers in high-risk or new categories, and land-grab selling, which rapidly replaces established workflows with a measurable economic case. They draw on Samsara and Meraki to discuss targeting, trials, sales-team design, and when companies should shift from one motion to the other.

Full Transcript

Transcript of Choosing Your Sales Strategy: Lighthouse vs. Landgrab from A16Z. Auto-generated from episode audio; may contain minor errors.

Now is the time to get back into back into back into selling selling selling large large software. We are now considering a completely different completely different completely different way of doing business. business. business. What are the sales strategies aimed at aimed at attracting customers attracting customers attracting customers and capturing the market? Here's a diagram to help you evaluate which strategy to follow. There is a very obvious very obvious very obvious strategy: strategy: strategy: focus on the most obvious most obvious most obvious companies. For example, in San Francisco, San Francisco, San Francisco, which probably which probably which probably have some have some have some evidence of their effectiveness or effectiveness or effectiveness or social value.

social value. social value. Or, for example, sell in Ohio. Find people Find people Find people who need your solution. solution. solution. If you think back to the corporate networking world in 2009, people thought we were crazy. We thought we had no chance of getting into the biggest corporations in the world because Cisco and HP had complete complete complete control over us. But we could say, ' Look, we can customize, we can deploy faster deploy faster , we're easier to use.' And it was a strategy aimed at aimed at aimed at capturing the market.

Too few people are willing to pick up the phone, willing to get on a plane, and willing to meet with these clients right clients right clients right now because they think think think selling JP Morgan Chase sounds a lot more attractive than selling Morgan. Morgan. Morgan. I think the biggest mistake biggest mistake biggest mistake I see I see early stage founders make, honestly, is just... Welcome Welcome Welcome back to the A16Z podcast. Today we'll talk about the most pressing question an question an AI founder asks himself: how to sell.

Joe Schmitt just wrote just wrote just wrote an article called "Lighthouse or "Lighthouse or "Lighthouse or Land Grab," which looks at two dominant dominant dominant sales strategies sales strategies sales strategies he's observed he's observed he's observed among among among enterprise enterprise enterprise AI startups. Joe, tell us about this article in your own words. What are the lighthouse and land grab sales strategies ? ? ? Yes, and this article actually started from an observation I observation I observation I made while driving down Highway 101. Maybe three, four, or five months ago, I ca n't remember.

And suddenly you realized that you have two competing two competing two competing companies. For companies. For companies. For example, one example, one example, one company is company is company is on one side of the highway, and another is on the other, and they sell the same software. And for some reason they all decided that the only companies that companies that companies that needed this software were in San Francisco and driving on the 101. And it became even more absurd. Obviously, absurd. Obviously, absurd. Obviously, every bus every bus every bus is plastered with advertising, and, you know, airplanes are flying overhead and now they're towing, you know, towing startups.

And I think it's all very very very clever, but it's all aimed at the same sales process sales process . In reality, it is not always necessary to do this. For example, you don't always have to sell to the same companies in San Francisco. So I would like to tell company founders company founders : “Here’s a framework for evaluating what evaluating what evaluating what sales strategy you should should should follow?” follow?” follow?” There is one very obvious option: obvious option: obvious option: you need to focus on focus on focus on the most famous companies in San Francisco, New York, in a large metropolitan area, which probably which probably which probably have some have some have some proven proven proven social value.

social value. social value. Or, for example, sell in Ohio, Chicago, St. Louis. Find people who need your solution. That was the whole point of the article: you don't always have to sell to these big-name companies, big-name companies, big-name companies, and we'll see how that goes, but here's why. why. And to go a little deeper, when does it make sense for a founder to , for example, buy that huge billboard billboard billboard you see you see you see when you drive from San Francisco to the city?

When does it make sense to conduct more targeted targeted sales activities or move to move to move to another location? another location? another location? Yes, and I think we tried to explain it in a consulting style using a two-by-two matrix. I have never worked in a consulting firm consulting firm , but I will try. And so we so we so we really really really thought about thought about thought about what axes should we use to use to use to compare compare compare capabilities? And we decided that the Y-axis was what we called the " buyer risk level." This is deliberately called a " risk level" risk level" risk level" because because because there is a risk of, for example, making a mistake with the solution you buy.

There is also a risk of using the using the using the solution within your company. For example, will the product I sell to my client be shown to their end consumers? This is, in fact, an important distinction. And, in fact, this is the overall risk associated with purchasing this this this software. So software. So software. So it was kind of a Y-axis, and it goes from high to high to high to low. And the x-axis is whether Proof is distributed in a given market. And, you know, if you think about it, the top right corner would show Proof in this market, and that means high means high means high risk for the buyer and high, high risk for the taker.

Um, and the bottom left corner is the Lighthouse Market, right? This needs to be clarified. Um, and the bottom left corner is, you know, a market that has low protection, but protection, but protection, but also low also low buyer reach, and that's the market where market where market where market capture is happening. Um, and I think they're think they're think they're actually quite actually quite actually quite different, and if you think about the standard markets standard markets standard markets that fit that fit that fit into the lighthouse model, they're, you know, regulated know, regulated know, regulated industries.

Often there is a more limited more limited more limited number of logos available . Um, if you get it wrong in an industry, like if a customer buys the wrong wrong software and it ends up doing something wrong, that could lead to very bad consequences bad consequences bad consequences for your firm, including, you know, potential potential regulatory issues, you know, even doing even doing even doing something illegal. something illegal. something illegal. This is very bad. Certainly. Um, on the other hand, when you look at a market where there's a territory grab, territory grab, territory grab, there's a there's a there's a set budget set budget .

People are very used to paying for a certain type of service, and you can come in and show the end customer the math, like, " My solution is better than any solution you're you're you're using today using today ." Whether it is a software solution or a human-controlled solution. So the distinction the distinction the distinction we made we made we made was was was between between between proof in the upper right corner of the quadrant and quadrant and quadrant and mathematical mathematical mathematical calculation in the lower left corner of the quadrant.

This is exactly how we developed we developed we developed this structure. this structure. this structure. Yes, Andy, we'll talk about talk about talk about your experience a little later, but I think it might be helpful to first divide today's today's today's AI startups into two categories, and I know you both work with a lot of these companies. So, Joe, I'm not sure if you want to give specific examples, specific examples, specific examples, or Andy, you want to give specific give specific give specific examples and just discuss discuss discuss sales strategies that you're seeing?

seeing? seeing? Yeah, I think you're, you know , kind of a "master of territory grabbing." So maybe you want to talk about talk about talk about some of the things you saw? you saw? you saw? Yeah, I mean, I think you put it very well well well in in in your article, but, yeah, I think the think the think the lighthouse concept is more applicable to industries that require, that require, that require, you know, you know, you know, regulation, a lot of social social proof, and so on.

And these are typically companies typically companies typically companies that are looking to create a category, right? That right? That right? That doesn't exist today, so you have to go out and prove your worth to worth to worth to big companies. And obviously we have a lot of lot of lot of portfolio companies. There are a lot of companies that I think you mentioned in your article that do this . On . On . On the other hand, there's a kind of " turf grab," you know, less social less social less social proof, but proof, but proof, but these companies, these companies, these companies, especially in the AI ​​world today, are potentially replacing or replacing or replacing or improving existing improving existing workflows.

And there is an existing budget, existing budget, existing budget, and again, we have a lot of portfolio companies that you mentioned in the article that are that are that are doing this today. They say, 'Hey, we've created a better way to solve this problem using AI.' And I think these are great companies great companies great companies that are using the " " " land grab" strategy. Yes, and that's interesting. For those not familiar with Andy's background, he built some of the best sales teams sales teams sales teams I've ever I've ever I've ever heard of at Samsara and Meraki.

And I always found these stories very stories very stories very fascinating and fascinating and fascinating and instructive. instructive. instructive. For example, the Samsara story surrounding the ELD rollout, as I understand it, is essentially about getting a getting a certain certain certain category of goods to appear everywhere at once, and it all depends on who can do it the fastest. Maybe fastest. Maybe fastest. Maybe you could, to educate educate educate the audience, talk a little bit about what about what about what made this made this made this moment so important, because we're in that very moment right now?

And how did you capture it? Yes. Yeah, I guess if you've you've you've been in this industry long enough and I have gray hair to prove I'm blonde. Blonde. blonde. Blonde. blonde. Blonde. Blonde. Blonde. Blonde. Yes, almost grey. Certainly. Certainly. Certainly. Um, you know, you tend to see these big, these big, these big, you know, you know, you know, transitions, and I'm old enough old enough old enough to have seen the internet come along, and of course mobile , cloud , cloud , cloud computing, and computing, and computing, and obviously now obviously now obviously now artificial artificial artificial intelligence, and each of those factors is driving this driving this driving this transition and new ways of thinking about how to go to market.

Not market. Not market. Not drastic drastic drastic changes, but always tools to tools to tools to help help help improve them. And I think the other thing I would say is that I can't name many companies many companies many companies that have achieved huge success without an element of luck and circumstance. Right circumstance. Right ? So, you're talking about Samsara, and, you know, the company was founded in 2015. I joined her in 2017. Um, you know, the idea back then was that, you know, in the very beginning, these were internet-connected sensors.

internet-connected sensors. All All All value chains will be equipped with sensors. How do we, you know, get sensors in and collect that data and then and then and then provide it to business owners in a way that's understandable and usable? And one of the first products first products first products to gain to gain to gain popularity were popularity were popularity were telematics telematics telematics devices. And if we look back and think about the world of transportation, about transportation, about transportation, about intercity intercity intercity freight transport, then before 2016, before 2016, paper timesheets existed .

If you were driving a truck and stopped for a break, you break, you break, you would write in your journal, "I just drove 4 hours, now I'm taking a 20- minute break," and then drive another 2 hours and stop for lunch. And if you were stopped by the traffic police, they would ask to see your log and check whether you had been driving too long. It was a was a was a safety rule. In the United States, around 2016, the use of use of electronic electronic time recording devices (ELDs) was introduced as a mandatory requirement.

The idea was that we could use use use technology to technology to technology to track how long a vehicle was driving, whether it was getting enough rest, and so on, right? on, right? on, right? Eliminate Eliminate Eliminate human factors human factors human factors and data collection. More precisely, the human factor. human factor. human factor. And so, over the course of two years, from 2016 to 2019, this was implemented with various stages of compliance compliance compliance . But it gave a huge boost to all manufacturers of manufacturers of manufacturers of electronic electronic data recording devices.

And we turned out to be one of the new companies new companies doing this. But there were some very famous players, famous players, famous players, right? AT&T had a solution, Verizon had a solution. A number of companies that already had hundreds of millions, half a billion dollars in revenue, were doing this. And, as they say, a rising tide lifts all boats. It helped everyone. But if you were new to the market, like we were at Samsara , it really helped because helped because helped because essentially the whole industry suddenly had to find the budget to buy these things.

And a certain percentage certain percentage certain percentage of them obviously said, "Let's said, "Let's said, "Let's see what's new . Are there any new players in this market? And that really really really helped us, so to speak, give it a boost. How did you deal with the issue of social proof in this context? Because context? Because , you know, I think a casual casual casual observer might observer might observer might think about it and say, "Okay, say, "Okay, say, "Okay, wow, that's wow, that's wow, that's regulated.

We regulated. We regulated. We can't screw this up." Therefore, Therefore, Therefore, you will probably have to turn to a major major major intercity intercity intercity freight shipping company. I'm trying to remember the ones I see on the motorway, but in any case, you'd probably have to refer to that one , but from what I understand, you haven't done that. So how did you deal with the social social proof element? Yes. Well, I think that, you know, I would...and maybe I'm underestimating a little bit the amount of strategy that went into this, but the strategy around, are around, are around, are we going to chase key key key accounts or are we going to fight for new contracts?

Who is ready to pay us? We kind of listen to listen to listen to our customers, right ? And you don't need a lot of cold calling to the largest transportation and transportation and transportation and freight freight freight companies, when When you, you know, a company that's only been around for 18 months, that no one has ever heard of, and you hear, "We're not buying you," you start thinking, " Who could we sell to ?" In 2017-2018 we had a minimal set of functions. We were just looking to see if we had anything that anything that anything that someone would want to buy .

And so, for us at that time, the middle market was the optimal optimal optimal option for option for option for several reasons. several reasons. several reasons. First of all, he didn't require that much social social social proof, right? proof, right? proof, right? It was more about, are you meeting you meeting you meeting my my my telematics needs? Do you meet you meet you meet the requirements? And secondly, we could get very get very get very quick quick quick feedback on the product, right? Because right? Because right?

Because sales cycles are short, we could introduce introduce introduce the product quickly and they could deploy it quickly, right ? The larger the client, the longer these deployments take, the longer the longer the longer the feedback cycles. And that's really really really helped us in terms of product innovation, product innovation, product innovation, just to just to just to get as get as get as many deals as possible, to get as get as get as many wins as possible. Yes. And I think that's really, really really, really really, really important.

For example, when, you know, early early early stage founders evaluate this point in time, what do we do? We don't have, you know, a mandate from the US government that requires us requires us requires us to implement AI, but, you know, you know, you know, CEOs everywhere CEOs everywhere CEOs everywhere are saying that we should be implementing AI in companies. Now, companies. Now, companies. Now, every business every business every business has AI boards that say: this is what we need to buy, and we need to do it by a certain time period.

And this, of course, will pass, but within large companies there is this moment of crazy, you know, kinetic energy. And so I think what he just said, or rather what rather what rather what Andy just said, is actually a good indicator good indicator good indicator of whether of whether of whether you're in a territory grab market or a or a or a beacon market. Are people ready to buy from you? Part of the math in a territory takeover is , are , are they willing they willing they willing to call you?

Are they ready to buy your product? Are you running pilot projects and trying to figure out how to get people to use them? If this doesn't work, then you have to have to have to delve into the details, develop develop develop effective effective effective strategies, and look for ways to reach the next clients. But I think too few people are willing to call, get on a plane, and plane, and plane, and meet with these clients right clients right clients right now because now because now because they feel like, "Oh, this is the next stage in the evolution of this category." "I need to go.

I need to go to JP Morgan Chase to sell my deal. Yes, and you said a very good thing. The question is: do they have an existing budget? Is this a this a replacement product? If so, you you you will probably be inclined to capture the market. If it's a completely new product, and there are so many of them today, right? We communicate with the founders every day. Companies day. Companies day. Companies are born with completely new completely new completely new products and products and products and are aiming for completely new completely new completely new markets.

If you have to spend a lot of time educating educating educating your market, if they don't have an existing existing existing budget, if you have to put them through this through this through this educational educational educational process before process before process before they can they can they can justify buying justify buying justify buying internally, it's internally, it's internally, it's probably more probably more probably more like a like a like a lighthouse strategy. Yes, yes. You take them through this educational this educational this educational process, and it's much more much more much more like like like missionary work missionary work than than than saying, "Hey, saying, "Hey, saying, "Hey, take the money you're spending on Supplier A and transfer it to us." Yes, yes.

Yes, yes. Yes, yes. So maybe it's worth doing. In particular, about particular, about particular, about some of these companies. I know you you you talked about Heavy A and Harvie earlier as classic as classic as classic examples of "beacons," and then about Stott and Deckle Gone as companies as companies as companies looking to looking to looking to take over. So maybe you'd maybe you'd maybe you'd like to talk about some of these strategies that you've seen, or seen, or seen, or maybe give some other examples?

Yes. examples? Yes. examples? Yes. Certainly. I Certainly. I Certainly. I mean, I...I...I mean, I...I...I mean, I...I...I mean, you can start. Um, you know, uh, so I highlight Sute in the article as a prototypical example of the kind of power-grabbing company power-grabbing company we're seeing in this new era. So , Sute is an amazing business amazing business amazing business founded by, you know, two incredible two incredible two incredible entrepreneurs, uh entrepreneurs, uh , Tark and Ben. And uh , they're targeting the accounts receivable market . And for listeners, uh, listeners, uh, listeners, uh, who may have never never never thought about thought about accounts receivable, uh, it's when somebody owes you money, uh , in the context of a business, and you have to go and collect the money from them .

It's not glamorous, uh...But glamorous, uh...But glamorous, uh...But historically there historically there historically there was a mechanism to do it, right? There were debt collection teams, and there were large software products software products , I won't name them name them name them because the compliance department would probably probably probably flag them anyway. So, there are large companies that companies that companies that do do debt collection and sell them on this market, but it was very labor-intensive, very labor-intensive, very labor-intensive, right? These right? These right? These human teams human teams human teams need to need to need to interact with interact with interact with this this this software, they software, they software, they need to go out to the field, sell, or do do debt collection.

And here's what Sute said: " Artificial Artificial Artificial intelligence is intelligence is intelligence is actually quite good at essentially having a conversation with people . He is very good at analyzing analyzing analyzing internal internal internal information and essentially carries out the process from start to finish. And so we could could could rethink this rethink this rethink this historical way of collecting collecting collecting debt, and debt, and debt, and instead of having people do it, we could have people and people and people and artificial artificial artificial intelligence do it, and do it even more efficiently." And what they saw opened up new possibilities for them— essentially a full suite of solutions for managing managing accounts receivable, from order to payment.

And this is what they showed all the buyers early on: “We have mathematical have mathematical have mathematical proof proof proof that we will be more effective than your current solution and your current collection teams . And . And XYZ will do this, significantly improving significantly improving significantly improving working capital. working capital. working capital. This will save you money. In fact, it will make you more money." more money." more money." So they were able to go to the middle market and just show the show the math and ask, "Do you want this solution?

"Yes or no?" This is a very good example of a market where market capture is taking place. And these entrepreneurs are entrepreneurs are just incredible just incredible just incredible salespeople. They salespeople. They salespeople. They do the best work, as good as anyone I've ever I've ever I've ever seen. And they do a great job. great job. great job. You know, another example concerning “ beacons” is the Harvey company, Harvey company, Harvey company, which we wrote about in our article. They've done a done a done a fantastic fantastic fantastic job of attracting the right law right law right law firms to this brand new, brand new, brand new, theoretically very theoretically very theoretically very risky risky risky initiative where you augment your augment your augment your human labor with AI capabilities and automate what automate what junior lawyers would normally do.

And when they won their first few first few first few major contracts in their market, that evidence evidence evidence became widely became widely became widely known. And known. And known. And then the customers, having had this great experience, realized, “Actually, it’s “Actually, it’s “Actually, it’s safe for me to buy this solution.” So these are two counterexamples, two counterexamples, two counterexamples, or, you know, two examples in this market . I don't know what you would highlight from the experience of other companies other companies other companies you you you work with, or anything you've seen.

you've seen. you've seen. Yes, these are two great examples. I'm currently working quite a lot with Pylon, a company we've invested in. They are essentially providing essentially providing essentially providing native customer support using AI. And they are a great example of market capture. market capture. market capture. They're doing a fantastic fantastic fantastic job now of just saying, 'We have a better way to do this.' And, you know, they've been gradually moving up the ACV ( ACV ( cost per unit ) ladder, but they started with pretty modest ACV values and have been gradually moving up, moving up, moving up, just replacing just replacing just replacing older products.

older products. older products. They have a fantastic go-to- fantastic go-to- market team that just gets the gets the gets the job done. job done. job done. This ACV question is quite interesting and I'd be curious to know how you thought about it in Meraki or Samsara. You know, there is a huge demand and many different many different many different ways to build a go-to- go-to- go-to- market strategy. How much thought did you give to what you were aiming for , , for example, when your annual income annual income annual income was 10% or 50% in one of these businesses?

Have you optimized this optimized this optimized this metric or were you just trying to figure out how to get enough enough enough clients? clients? clients? Yes, Yes, Yes, that's a good question. The answer is simple: you think about it a lot, and then you try not to think about it at all. And I mean, you have to make sure that the annual income that you're you're you're aiming for should cross that cross that cross that threshold, right? In other words, you look at your at your at your unit economics and assess whether assess whether assess whether it is healthy or not.

You don't want to make deals that deals that deals that negatively impact negatively impact negatively impact your your your unit economics. But if the threshold is exceeded, you don’t think about it . You just take as take as take as many of these deals as you can. So if you could theoretically could theoretically could theoretically create a create a create a market entry mechanism that could that could that could survive survive survive on $15,000 worth of trades , that's , that's , that's great. You great.

You great. You shouldn't take on $8,000 trades, but rather aim for as many many $15,000 trades as possible. You need to create a repeatable mechanism repeatable mechanism , add fuel to the fire and close as many of these deals as possible. And over time, you will gradually begin to move up, right? Big right? Big right? Big companies will companies will companies will value what you do, and you'll start accumulating wins and climbing the climbing the climbing the ACV ladder. ACV ladder. ACV ladder. And let me just clarify one more thing, because it's because it's because it's interesting and I really enjoy hearing you talk about it.

For example, about Meraki, and maybe it's worth telling the audience what Meraki does. They're basically basically basically access points, right? To connect to the Internet. And you had a very clever program where program where program where you gave away access points for free, as far as I understand. But of course, this affects the gross profit, but the hardware element is also included in the calculation of the gross profit profit profit . . . We don't have many companies that, companies that, companies that, for example, for example, for example, develop develop develop AI applications with a hardware hardware hardware component, but there is an output element output element output element that affects that affects that affects gross profit.

gross profit. gross profit. So I don't know how you thought through those kinds of tradeoffs in the early days of Meraki, and of course you had the same situation with the equipment at Centara. Yeah, so just to educate to educate to educate the audience, Meraki 20 years ago was essentially a cloud networking company. It is still part of Cisco and remains a remains a remains a very successful very successful very successful business. It was acquired by Cisco in 2012. But the company was founded back in 2006.

The co-founders worked on a research research research project as project as project as graduate students at MIT and started this business. And interestingly, the interestingly, the interestingly, the research research research project was dedicated to Roofnet. The technology they they they developed developed developed was was was essentially a essentially a essentially a large-scale large-scale large-scale mesh Wi-Fi network that they that they that they installed on installed on installed on rooftops, rooftops, rooftops, such as in Cambridge . The idea was to equip equip equip these municipalities, these municipalities, these municipalities, parks and public spaces with Wi-Fi.

It was fantastic fantastic fantastic technology. However, within the first couple of years they realized that this was not a very successful business model. Wi-Fi wasn't making much making much making much money. That's why they reoriented themselves reoriented themselves reoriented themselves towards the corporate segment. And the reason I say that is because if you if you think about the enterprise networking world in 2009-2010, people thought we were crazy . Why even try to start a corporate networking company in 2009? Was n't this market conquered 10 years ago by Cisco and HP?

But the reality was , and again, going back to the time, it was just when when when cloud cloud cloud computing came along. And the biggest innovation at Meraki was that the team of developers and developers and developers and engineers, simply engineers, simply engineers, simply fantastic, fantastic, fantastic, figured out how to configure and configure and configure and manage this manage this manage this network network network equipment via the cloud. It sounds really cool, of course. It was quite innovative at the time . So , our problem was the was the market capture strategy, right?

We had no chance of getting into the biggest biggest biggest corporations in the world because Cisco and HP had complete complete complete control over them. But we could say, ' Look, we can customize, we can deploy faster deploy faster , we're easier to use.' Well, use.' Well, use.' Well, who needs this? Middle market, right ? Where they don't have large IT teams trained in trained in trained in command line and things like that. And so, you know, at that point we were really, like, "What's the best way to convince them that our networking equipment is easier to use than their Cisco that they're going to buy?" Yeah.

Yeah. Yeah. The answer is simple: you have to let them try. So we held webinars and said, "Join the "Join the "Join the webinar, we'll send you free you free you free access. " access. " access. " Join in and try it out." The idea was that once they tried it, tried it, tried it, they'd realize, "Wow, this is so much easier than what I'm I'm I'm using. Why do n't I give it a try? And it's been very successful for a long time, long time, long time, and even as the company has grown, we've been very lenient in terms of testing and evaluation, because, at the core, we want customers to experience the technology for themselves and understand that it's better than the alternative.

Do alternative. Do alternative. Do you think there is any opportunity opportunity opportunity to learn from this experience right now? Although it's difficult because a lot of new AI technologies require tuning, require tuning, require tuning, right? For example, if you just give someone something something something like a Ferrari, they might not even know how to turn it on. And, uh, so I don't know how you could even could even could even think through a mechanism for providing these providing these providing these trial periods, trial periods, trial periods, prototypes with prototypes with prototypes with some of the AI ​​companies AI ​​companies that you're that you're that you're working with now?

Yes. I think it's gotten more difficult, right? In the world of AI, because, AI, because, firstly, everything changes very quickly. Everything changes daily. And if you think about a prototype or a trial, the trial, the trial, the whole idea, if you're on the sales side, is to get the customer to experience it. I want to prove that it works for him, but I want to do it over a period of period of period of time that won't last forever, last forever, last forever, right? So what you want to avoid, and I think one of the real dangers real dangers real dangers today is that these things these things these things become become become science projects, science projects, science projects, right?

Like, I'm going to going to going to turn this around. What can this do? Can this do that? Can you show me this ? Can you show me this? And, of course, everything is developing every day. So the answer is probably yes, I could, but then there is a risk that these tests or proofs of concept would go on indefinitely. And so , I think it takes a lot of discipline these days to really really really box all of that in and say, "Look, say, "Look, say, "Look, here's what our solution does, and we're going to define it this way, and we're both going to agree that if it, you know, does that in 45 days, that's a success, and you 're going to move forward with the purchase." And there is a lot of this today.

And would you recommend recommend recommend using using using automated automated automated conversions as much as possible, or yeah, I don't know what other lessons can be learned from that 30-45 day period? Yes. You also need to talk about the time you you you give people give people give people to work with the product. product. product. I think the time frame depends a bit on the complexity of your product, your product, your product, right? If it takes, say, takes, say, two weeks to set it up, then you can't have a two-week two-week trial.

But trial. But trial. But I think the two most important things are that there's an end end end date, right? It's a 30- day day day trial, a 45-day trial, a 60- day trial day trial day trial , period. And second, you must define your define your define your success criteria in advance. This is what we prove we can do for you , right? And in some companies, you know, you can't do a do a do a proof of concept because maybe because maybe because maybe it's a it's a it's a regulatory issue, regulatory issue, regulatory issue, maybe there's too much risk, and they won't let you do it .

But, if possible, I think it's important to make sure you have both an end date and clearly defined success criteria. success criteria. success criteria. Yeah, I think it's very challenging right now because, you know, there's so much, you know, you have to essentially define the scope of the work that you want to do and the criteria for success. But often, if you're automating something automating something that's never been automated before, it requires a requires a requires a significant significant significant amount of setup, and that costs money.

Yes. And then your product may work, but it may not be deployed correctly and the results will not be available available available in 30 or 45 days. Yes. And how does it really work ...There is a difference between "the product works" and "you just..." and "we... " and "you" and "yours" and " essentially, you need to work with the client and optimize everything optimize everything optimize everything they do with the product." Yes. product." Yes. Um, right? Um, right? Imagine that you are... well, I don't always go back to sales because it's easy to think about sales, but sales, but sales, but imagine that you are a sales tool.

sales tool. sales tool. The product needs to work, and you need to use it in a way that targets the targets the targets the right customers. right customers. right customers. Yes, Yes, Yes, on what you sell . And these are like two different parts of the equation. So, if you suddenly take on the risk of whether your product will work and whether it is used correctly... Yes. It's Yes. It's Yes. It's very difficult. And so I think this is a really important topic for founders and for early-stage early-stage business leaders business leaders business leaders to understand how you educate your educate your educate your customers about what we're signing up for.

We're not signing up for, you know, maybe that, but maybe also whether also whether also whether your your your employees employees employees are using our tool correctly. tool correctly. tool correctly. Who do you think is best at promoting their promoting their services and guiding people through the onboarding process? onboarding process? onboarding process? You know who I would put in this category? I think Deckagon did an amazing job in this regard. They essentially preach essentially preach essentially preach that they provide better customer support than anyone else.

And they explain very well what indicators we need to achieve, and they achieve them within the established deadlines. established deadlines. So I think some people might underestimate it. underestimate it. underestimate it. Providing effective Providing effective Providing effective customer support is very difficult. This is a high- high- high- risk market where you don't want to want to want to screw it up. So I think they've done a really really really good job of marketing their marketing their marketing their services. Um, I think the guys at Studebaker, let's go back to the example I just I just I just talked about.

And another example—sorry, example—sorry, example—sorry, the company I'm on the board of directors of is called called called Further, Further AI, and they sell their sell their sell their products in the insurance industry. They are essentially promoting the idea of ​​introducing AI into insurance. insurance. insurance. Mmm. Mmm. Mmm. You know, people haven't used AI in insurance. It's not exactly a case of someone being the first to implement this technology. But many of their clients are the largest insurance largest insurance largest insurance companies in the world. And that's because they're very comfortable saying, " Okay, here's an AI-based solution AI-based solution AI-based solution that's built that's built that's built around governance, around governance, around governance, security, and security, and security, and management first management first management first ." And then they work with work with work with their clients' teams to get it up and running.

Here are a couple of examples. I don't know if you have any examples. any examples. any examples. And here's another good example of the "lighthouse" strategy, "lighthouse" strategy, "lighthouse" strategy, right? They target the big insurance big insurance big insurance companies, and you get social get social get social proof, and so on down the long tail of the insurance market. insurance market. insurance market. And I think sometimes people think that you have to be in a certain market to use the lighthouse strategy. Or maybe someone is sitting at home and thinking: “ Oh, if only I worked for this company, I could do this.” do this.” do this.” But in reality: “No, the reality is this: you need to build relationships.” Yes.

relationships.” Yes. You know, I see you're laughing because I know what you're thinking: "So, build "So, build "So, build relationships with your clients. Find clients. Find clients. Find someone and someone and someone and show them that I have a well-deserved secret. well-deserved secret. well-deserved secret. This well-deserved This well-deserved This well-deserved secret is that AI can AI can AI can help your help your help your business get started. Here are some ways technology can help your business. And, you know, work with us in this direction." I will also say that every small every small every small company wants to become big.

I don't know many very large and successful companies successful companies successful companies that have that have that have n't n't n't used both used both used both strategies at some point, right? You may start by capturing territory, capturing territory, capturing territory, but as you mature, you will develop a "lighthouse" strategy. "lighthouse" strategy. "lighthouse" strategy. Or you start with a beacon strategy and then grow then grow then grow big enough big enough big enough to move on to a broader strategy, broader strategy, broader strategy, like like like territory capture.

So when I ask this question question question to early stage founders, I think it's about doing what makes the most the most the most sense for sense for sense for your business right now. What does it mean? Get out and talk to talk to talk to customers. Find out where the where the where the earliest and easiest sales are and follow that strategy. This doesn't mean you give up on the other strategy entirely. It just means you need to get back to it . And at both the last companies I companies I companies I worked at, Meraki and Samsara, we started out by capturing territory, but once we we we matured and started working with larger enterprises, what do you do next?

You're expanding vertically, and suddenly , great, who's in the top five transportation transportation transportation companies? Who are the top 5 warehouse companies? warehouse companies? Who are the top five leaders in the public public public sector? And you want to capture them. This way you can transform into a territory capture strategy. You simply want to do what is most effective most effective most effective and efficient for your company's stage of development . . . Can you talk a little about one about one about one of the key markets you opened by moving from an early-stage territorial acquisition strategy to a beacon strategy in that market?

How did you form this form this form this team? Or was it just you or the founders who were exploring this new market? And maybe a little bit about some of the deals you've deals you've deals you've made. I'm just curious how that affected the affected the affected the sequence of sequence of sequence of events. events. Well, I think that at both Meraki and Samsara, the earliest example of a lighthouse strategy lighthouse strategy lighthouse strategy was vertical was vertical was vertical integration. And in both cases it was, in essence, the essence, the essence, the public public public sector.

Meraki, however, targeted targeted targeted school districts school districts school districts because they were relatively easy relatively easy relatively easy targets. And you know, if you've ever you've ever you've ever sold to sold to sold to school districts, you know that they all talk to each other. They all know each other. You need to find the largest school largest school largest school districts in each state . And if you can do that, every school district under them will say, "Yeah, what did that one buy?" Great. Suddenly Suddenly Suddenly social social social proof appears.

proof appears. proof appears. Now, why would you use the use the use the lighthouse strategy, lighthouse strategy, lighthouse strategy, say, in school districts, or, as in the case of Samsara, when we moved into the public public public sector, when you start selling to cities, counties, and states, why change the approach? Because the sales process is fundamentally different fundamentally different . Right? The sales cycles are different, the sales method is different, the different, the different, the decision makers are different, the different, the different, the purchasing methods are different.

And so if so if so if you ask that same sales team sales team sales team to move from selling to mid- mid- mid- size accounts, size accounts, size accounts, enterprise enterprise enterprise accounts, to selling to cities, counties, or school districts, it's just different. And so, you know, this is the point where you might want to change course and say, "Okay. say, "Okay. say, "Okay. Once we master the vertical vertical vertical economy, we want to move to the " lighthouse" strategy." lighthouse" strategy." lighthouse" strategy." What do you think are the differences differences differences between successful between successful between successful salespeople who salespeople who salespeople who use the use the use the lighthouse model and successful salespeople who salespeople who salespeople who use the use the use the land grab model?

Are there any any any differences you've differences you've differences you've observed, for example, when opening new markets? Is there a particular profile profile profile that has proven to be the most effective most effective ? ? ? It's difficult to generalize. I think the real beacon strategy beacon strategy is, when I think of it, what it means is, "We're going to going to going to target the target the target the financial sector. financial sector. financial sector. Here are the 15 largest clients in the financial industry, and here are their logos.

their logos. their logos. How many of them can we attract this quarter, this quarter, this quarter, next quarter, the next?” This is the "lighthouse" strategy. "lighthouse" strategy. "lighthouse" strategy. Typically you need more experienced, you know , corporate , corporate , corporate sales sales people who people who know how to work with those clients. They understand understand understand sales cycles. They understand purchasing cycles. In a " " " territory capture" strategy, you simply say, " We have the best technology. We technology. We technology. We are replacing this workflow.

We workflow. We workflow. We are replacing this product." You need very aggressive very aggressive very aggressive employees who employees who employees who hire people with the right right right attitude and attitude and attitude and abilities. You can hire people at earlier stages of their careers. You just need to get these people out there and reach as reach as reach as many customers as possible because at that point you're already entering a big market. You just want to win as quickly as possible . . Yeah, and I, you know, my unsolicited advice to any aspiring any aspiring any aspiring salesperson, salesperson, salesperson, potential potential potential salesperson, right now is this: Now is the best time to be in some of our our our portfolio companies.

This is indeed true. It's a lot of fun working in the market now. Yes. I'd like to ask about, um, maybe a third type of sales or distribution of a product that product that product that we haven't talked about, which is how how how the developer, so to speak, from the bottom up, is more actively more actively more actively implementing the product at the grassroots level. And this is what you observe? you observe? you observe? So the idea that the seller is becoming, I wouldn't say obsolete, say obsolete, say obsolete, but for a certain type of product it's simply less relevant less relevant less relevant now?

For example, a developer says, developer says, developer says, you know, to their CTO or their CIO CIO or whoever, "Hey, this is great. Let's great. Let's great. Let's just take this." “And does it require less less less sales effort? sales effort? sales effort? Yeah, you know, I think definitely not. definitely not. definitely not. Many PLG ( Product-Level Marketing) models still exist today. I think people are constantly buying buying buying consumer- consumer- consumer- style products. And I think new new new patterns of patterns of patterns of consumer behavior are emerging, and of course we were big investors big investors big investors in Cursor, and everyone saw how that impacted things, and there are many other many other many other examples.

However, examples. However, examples. However, if I take a big step back and talk about where we are in this current cycle, I wrote a big article called article called article called "Trading Margins "Trading Margins "Trading Margins for Competitive for Competitive for Competitive Advantage" about a year and a half ago or so about the cycle. And if you think about think about think about why, you know, the last 12 years leading up to 2024, 10 or 15 years leading up to 2024, you've seen so much PLG, that's just where we've been in the software innovation cycle .

And a lot of this Large companies that companies that companies that deal with deal with deal with cloud cloud cloud platforms, if platforms, if platforms, if we talk about CRM, HR, ITSM, security, security, many of them were founded between founded between founded between 2000 and 2008, 2010. These companies were solving large-scale problems large-scale problems large-scale problems related to related to related to platform platform platform solutions. solutions. solutions. So, the So, the So, the only way to break into the corporate corporate corporate segment, right? What we're talking about when selling to corporate corporate corporate clients or clients or clients or mid-sized mid-sized mid-sized businesses is creating a kind of " embedded" product, embedded" product, embedded" product, embedding it into the system, and saying, "I'll solve this part of your solution package, and then I'll then I'll then I'll gradually expand gradually expand gradually expand it." This " gradual gradual gradual implementation and implementation and implementation and expansion" model became very popular, but it was really based on the implementation phase.

implementation phase. implementation phase. Of course, there were other companies other companies other companies that said, “I want to create a new CRM system. I want to create a new HRIS system. I want to create a new ITSM system." “But system." “But system." “But really, moving from on- on- on- premises to the cloud was a big enough big enough big enough shift that people wanted to move to something new, but moving from one cloud solution to another for CRM is a whole other whole other whole other thing, I don’t care if it’s a green button or a blue button.

I don't care if there is even the slightest difference in functionality. I'm not going to going to going to switch. So, switch. So, switch. So, you can compare that cycle where we spent the last 15 years looking at everything , always , always , always admiring BLG and saying it was incredible, with where we are now. There's incredible incredible energy inside companies, they're saying, 'Hey, this could be something as something as something as fundamental as fundamental as fundamental as CRM, right?' It could be something as fundamental fundamental as HR, ITSM.

We are now looking at a completely different completely different completely different way of doing business. This is not a one-to-one, green-to-blue skeuomorphic replacement. Now we think about people people people doing something doing something doing something completely different, completely different, completely different, much more valuable. We will be doing much less of the same , you know, routine work. routine work. routine work. Instead, agents Instead, agents Instead, agents will do what they do. And that's where I think the think the opportunity is right now, and that's why instead of talking about, talking about, talking about, of course, PLG and all these other these other these other sales models, now is the moment to moment to moment to start selling, start selling, start selling, you know, big software again, right?

And sell platforms. sell platforms. sell platforms. And it is precisely because of this moment. this moment. this moment. So I think people need to look at the models from 15 years ago, how people built it and the ecosystems around ecosystems around ecosystems around it to be successful. successful. successful. Yes, I think that's true. I will say that I think it's a consistent trend. consistent trend. consistent trend. Over the course of my career, I've noticed that with each passing year and with each each each technological technological technological transition, buyers transition, buyers transition, buyers are becoming more and more and more and more educated, right?

educated, right? educated, right? Today, the buyer, in fact, in fact, in fact, understands better what he wants than 5, 10, 15 years ago. And this, you know, contributes more contributes more contributes more to the fact that if you can can can influence influence influence the buyer when he is in the decision-making process, decision-making process, decision-making process, you will have a greater chance of success. It doesn't have to be a PLG (Program Mystery Dungeon), but it could be a more DIY DIY DIY approach. It might be easier than it was 10, 15, 20 years ago when you had to had to had to take them through this whole educational journey: why they need this, how it works, this is how you write it.

write it. write it. They are now much more knowledgeable about knowledgeable about knowledgeable about what they want to buy, and your job is simply to convince them that your company is the right solution right solution right solution for them. for them. for them. Amen. Yes. Yes. I think they are a beacon. It's like the definition just keeps pushing outward, or you just have to keep exploring keep exploring keep exploring new territories. I'm curious, I curious, I curious, I guess a guess a guess a company can't company can't company can't remain a beacon forever, and you even mentioned that, mentioned that, mentioned that, Andy.

What's the average period of time that a that a that a company can company can company can just, you know, " hijack" these hijack" these hijack" these big logos, and then, you know, what's that transition that transition that transition point, I guess? Yes. I mean, I mean, theoretically, it's theoretically, it's theoretically, it's possible, right? If you were a company that that that had a had a had a multi-product multi-product multi-product strategy, you strategy, you strategy, you could just keep releasing new releasing new releasing new products and products and products and keep expanding into , you know, new verticals, right?

verticals, right? verticals, right? Theoretically it is possible, and I think we could give some examples of companies that have done this. But yeah, in general, you know, if you start with a beacon strategy, you've created social created social created social proof, you've proof, you've proof, you've attracted these attracted these attracted these big names, then what you want to do is grow the category underneath category underneath category underneath . That's right, right ? If I have a list of the five largest largest largest financial companies in the world, I want to move on to the list of companies next to them.

And so, in essence, it changes the changes the changes the approach to sales a little bit, doesn't it? You spend less time on, you know, a huge organization, a big logo, sales; and you spend more spend more spend more time, you know, on social social social proof and proof and proof and more time on, " Here's the link if you need it; Otherwise, here's Otherwise, here's Otherwise, here's why my product is the best, buy it." “ Yes, and I think, and going back to Andy's point, there are certain certain certain companies that I think have been flying under the radar all this time.

And the best example I can I can I can think of is Applied Intuition from our portfolio. There are a very limited limited limited number of people who buy who buy who buy this kind of autonomous software, and software, and a certain a certain a certain number of number of number of car manufacturers and so on around the world. It's not that these are the only only only people they people they people they can sell to, but of course these are their trading markets and so each of them needs to be treated with extreme with extreme with extreme caution caution caution because these are huge huge huge ACB (Accountable Controlled Buy ) opportunities.

And they are, obviously, I think they are probably the best in the world at this. So yes, this is a great example. example. example. Why might a founder misjudge the game they're playing, or how have you seen seen seen founders founders misjudge the situation? What are they doing: a lighthouse or a land grab? Selling a company to JP Morgan Chase sounds a lot more appealing than, appealing than, appealing than, like, Schmitty Schmitty Morgan. Honestly, the biggest mistake biggest mistake I see I see early-stage founders make is spending too spending too spending too much time much time much time trying to trying to trying to figure everything out, right?

Too much Too much Too much time for strategy. Yes, yes. Yes, yes. Yes, yes. Strategy is important, but you only need to need to need to spend about 1% of your time on it, choosing a strategy, and then 99% of your time time time implementing it. Yes. So instead of sitting sitting sitting back and saying, "Well, you know, should we do the lighthouse or the land grab?" land grab?" Get out there and talk to your customers. Find out which of them are ready ready ready to buy your product with its features and services, and go down that path.

Yes. There are no bonuses for honestly earned honestly earned honestly earned profits profits profits , and you don't get any get any get any additional additional additional income multipliers income multipliers income multipliers if you get a large logo or something similar. something similar. something similar. Find the clients you can, can, can, constantly improve constantly improve constantly improve your product, and you can always can always can always revise your revise your revise your strategy. After the first year, if you hit all your revenue targets, you can look can look can look at it and say, " Could we do this more efficiently?" more efficiently?" more efficiently?" Maybe.

Yes. But don't spend too spend too spend too much time in " " " analysis paralysis" mode. Yes, I completely agree with this. Joe, you had some interesting questions interesting questions interesting questions for Andy. It was a quick question. question. question. Yes, a quick question. I'll see what other questions come to mind, but... The first one is probably your probably your probably your favorite place you've ever closed a deal, and the weirdest place weirdest place weirdest place you've ever done it. Yes, we have had clients who have taken us to some pretty strange pretty strange pretty strange places, right?

I made deals while fishing. I made deals, you know, at shooting ranges. I made deals at baseball baseball baseball stadiums. So, yeah , I think it's all pretty unique, pretty unique, pretty unique, like any place other than a conference room. Yes. room. Yes. Chili's at the airport? Maybe. Probably Maybe. Probably Maybe. Probably over the years. For a couple of dollars. At Sam's Club, of course. We sell, you know, to logistics and logistics and logistics and transport transport transport companies, a lot of truck parking lots and things like that .

Well, you know, sanitary stations. sanitary stations. sanitary stations. You know, there are some, there are some crazy ones. When you're doing land grabs, I think that's a common theme, people are just willing to go and sell anywhere. sell anywhere. sell anywhere. Maybe Andy, if you If you could go back and tell yourself tell yourself one thing when you were building these teams or when you started your career, what would you tell yourself? At the beginning of my career... Well, I mean, this is the advice I give to a lot of people at the beginning of their careers.

And that was the mistake I made in the beginning. The only thing you really you really you really need to need to need to focus on focus on focus on when starting your sales career sales career sales career is finding the best company company company you can you can you can work for. I made this mistake early in my career. I was chasing after where I can earn the most most most commission? Where commission? Where commission? Where can I make the most money? most money? most money?

What is the most advanced technology advanced technology ? Where can I get the highest highest highest position? In the end, none of this matters. You matters. You matters. You need to find a great company that company that company that will grow. And if you do that, it's like a like a like a career elevator, right? You will grow with the company. But you can't let let let your ego get in the way of, and I want a director's position director's position director's position or I want this high base high base high base salary or I think I can get this high commission commission commission rate.

Just rate. Just rate. Just find the best company company company you can work for. Yes. I completely agree. What position do you think companies should companies should companies should hire earlier than usual in the sales department? sales department? sales department? I mean, it really really really depends on the company and how how how comfortable the comfortable the comfortable the founders feel. founders feel. founders feel. For example, if you're a founder who's founder who's founder who's very comfortable very comfortable very comfortable with with with sales, you might want to wait longer before hiring a head of head of head of sales and the like.

So this is a bit of a general question, but I would say that the operations department operations department operations department in in in sales is sales is sales is probably the department where I think companies wait too long. And I am not a supporter. I don't think you need to, you know , create a giant giant revenue management organization. It could It could It could literally be one person. But you need somebody who's somebody who's somebody who's thinking every day about territory allocation, you know , lists of names, you know, you know, you know, fighting for fighting for fighting for commissions, commissions, commissions, setting up the sales department charter.

All of this becomes this becomes this becomes really, really, really, really important really important because when you get into... get into... For example, in zoom mode, you want to have all of these things basically things basically things basically worked out. Otherwise, this should not turn into turn into turn into obstacles. obstacles. obstacles. Yes, that's absolutely right. So you need someone who thinks about it . And it's usually not going to be your head of head of head of sales because he's thinking about how to hire the next employee?

How employee? How employee? How to close your next deal? So, I would say, yes, perhaps the operations department of the sales department, the operations department of the sales department. Yes. Maybe a Maybe a sentence or two on how you think about what percentage of sales teams in early early early stage companies should be hitting plan? And , you know, the thoughts of the sales department... Well, 100%. 100%. 100%. Yes, 100%. See, you said 100%. said 100%. said 100%. Well, I think you have some interesting comments comments comments about how, about how, about how, essentially, you're trying to keep them keep them keep them low so that everyone is a little bit greedy and greedy and greedy and really...

Well, I mean, mean, mean, look, I think in the early stages, early stages, early stages, sales teams... sales teams... Run on Run on Run on inertia, right? You want to hire winners and give them a chance to win. So yes, you want to attract people. You want to set reasonable goals. It must be must be must be profitable for the company. Your company. Your company. Your unit economics unit economics unit economics must must must work. You work. You work. You cannot change cannot change cannot change the calculations.

But ultimately, if ultimately, if ultimately, if you're an early- stage company and you have a great product, you want to hire the best sales people to bring that solution to market. And the way you you you do that, the way you engage those engage those engage those people, is to give them a chance to execute the plan. Absolutely right. Absolutely right. Absolutely right. So yeah, I think some some some companies today where they're, you know, 40, 50% hitting their target, I think they're probably doing themselves a disservice.

Either disservice. Either disservice. Either their plans are too high, or, you know, their hiring profile is not suitable. But, yeah, I think, especially in the early stages when , you know, the cost of sales isn't as important. When you're a public company and, you know, you've gone into a market and you've won it, nobody looks looks looks back and says, "Oh, my God, you know, your cost of sales was sales was sales was terrible six years ago." Yes. Nobody cares . Everyone is concerned, you know , have you set yourself on a path that will allow you to succeed?

Well, I think what's great about this conversation is how how how timeless a lot of the wisdom is. wisdom is. These These concepts and ways of thinking about the industry seem to be fairly fairly fairly consistent consistent consistent across the different software development cycles and eras we've seen. we've seen. we've seen. So anyway, So anyway, So anyway, Joe and Andy, thank you so much for joining us. joining us. It was great and I'm glad to see you again. Yes. Yes. Great. Great. Great. Thank you for inviting us.

Yes. Thanks, Andy. Thanks, Andy. Thanks, Andy. Thank you. This is fantastic.