Invest Like the Best with Patrick O'Shaughnessy - Frank Slootman - Narrow the Focus, Increase the Quality - [Invest Like the Best, EP. 265]

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Starting point is 00:01:07 development, or developers that could be add-ons to an existing team. Check out lemon.io slash Patrick to learn more. Hello and welcome, everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at join colossus.com.

Starting point is 00:01:44 Patrick O'Shaughnessy is the CEO of O'Shaunusie Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaunacy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. clients of O'Shaughnessy asset management may maintain positions in the securities discussed in this podcast. My guest today is Frank Sleutman, chairman and CEO of Cloud Platform Snowflake. Frank has become one of the most revered CEOs in business.

Starting point is 00:02:17 Over the past 20 years, he has three times taken over emerging enterprise software businesses, first data domain, then service now and most recently Snowflake, and led them across the chasm into large billion-dollar businesses. Please enjoy this great discussion with Frank Sleutman. So, Frank, I think I first came across your thinking and your work, reading tape sucks very early in my career and love some of the lessons from there. And then when Amped Up came out the original LinkedIn post and now book, it became kind of one of my Bibles that I hand out. And so I figured now that you've done a few interviews, I'd try to do something a little bit different to compliment the ones that you've done and sort of go through the life cycle since you've done this at least three times with ServiceNow Data Domain and now Snowflake. go through the episode of you coming into a company and applying some of these principles that you've written about. And I'd love to start with people. So when you are orienting yourself

Starting point is 00:03:10 day one in a new company, how do you go about or suggest others go about evaluating the team that you have so that you can begin to get the right team in place? The obvious answer to that question is you're not so much inspecting the people, you're inspecting the work. It may sound like an obvious distinction. But if I don't know that people, obviously I can't tell, but I can certainly look at what they're responsible for is functioning or not. And on the basis of that, I'm going to make decisions really, really quickly. I'm not going to go wait this out. I mean, somebody's running HR, and HR is not functioning worth a damn. That's enough. On the other hand, the opposite is also true on something that's working really, really well. That would be a reason to really embrace the people

Starting point is 00:03:54 that are there. Again, I'm stating the obvious here, but that is how it is. Certainly when I was a younger man, I used to wake things out even in spite of the evidence because it seemed like the reasonable thing to do. But it was stupid. I just avoided what I already knew. I avoided the inevitable, lost a lot of time. And by the way, your whole leadership mojo is being tested because when you're parachuting into Quackmire, sometimes even a crisis situation, you need to move. Okay, this is not like unless it takes six months here to see what's going on. You operate with imperfect information. That's always the case.

Starting point is 00:04:30 You'd be comfortable with that. If possible, you're wrong about things. And then you just need to be a fast course corrector. But I will tell you, I've never been wrong removing people from their jobs. And I've never been too early removing people from their jobs either. I have been too late, however. I love taking some of your principles to their natural extension or conclusion. And in this case, you might say you make that decision literally on day one.

Starting point is 00:04:54 That would sound crazy extreme, but how extreme are we talking? Is this a matter of weeks that you think these decisions can be made? Like, what is the upper limit of this pace to decide who no longer belongs in the situation? In the case of the most recent company, which is Snowflake, I was talking to the board for a relatively short period of time, but I already said, you need to buy into this. Here's what's going to happen. In other words, the decisions were made prior to day one, even. So because I wasn't going to go one of those scenarios where, you know, now I've got to go make my case to the board why I'm making all these things. No, I did that really before I stepped through the door.

Starting point is 00:05:28 So things were rocking and rolling from the beginning, which is unsettling to the organization. I get it, but it's always unsettling. You're better off ripping the band-aid off and moving and quit clarity sooner rather than letting things percolate and people just staring at each other like, what's the next shoe and the next shoe to drop? You don't want that. You want to get through it as fast as you can. What we wanted to do and what we were going to do and we're moving on.

Starting point is 00:05:52 It doesn't mean that there's not changes. coming later on, you can talk to the people at Snowflake. There have not been any changes after those first 90 days or so. So in other words, I'm almost in three years now. Everything happened in the first 90 days. If you are, rather than letting people go, bringing new senior executives onto the team, how do you solve that same problem of understanding their potential quality as leaders, as doers, especially if you haven't worked with them before? It's also an obvious question it should be obvious to the audience. You don't learn that much from an interview. I think interviews are highly overrated because it's like two dogs sniffing each other, deciding whether they can

Starting point is 00:06:32 even get through the door or not. And there's nothing wrong with that, but you're going to base a hiring decision on that. You're insane. How you find out is that you talk to everybody that you can't possibly talk to who has lived with that person, a superior, a subordinate, or a peer. Just ask the question. What was that person like? What was great? Well, it was not so great. Very, very quickly, you're going to get a very good picture, both on the performance end, but also on the behavioral end. And in other words, you can probe almost any dimension if you want. And you get a consistent view, which gives you high confidence that you're dealing with a good situation. Now, I've had situations where we were making higher risk moves where we weren't sure whether this person was right or not.

Starting point is 00:07:12 We just talk to each other and we go like, look, this may not work out. Okay, sometimes we do make decisions like that where we're nervous and we will still pull the trigger and do it. It doesn't happen very often. Sometimes we do it. Our eyes are wide open. Unfortunately, a lot of those don't work out because our intuition, our understanding up front was already tipping us off that it wasn't the right move. Sometimes we push ourselves down that path because we have a need. Sometimes it's more of a hope strategy than each other else. I find that, and this happens in their ranks as well, people don't spend nearly enough time doing background checks, and it's easy to do. You get on LinkedIn. You can find the content.

Starting point is 00:07:51 temporaries of this person, the ones that work in your company, okay? In other words, you don't have to go outside the company even to find out what's going on, because we're all higher from the same orbit. If I need to find somebody, you know, worked at VMware in a certain period of time, I probably got hundreds of people who worked at VMware at that period of time. This is not hard. Leadership requires constant confrontation. What have you learned about a great episode or a very productive episode of confrontation?

Starting point is 00:08:19 Like, what characterizes a great confrontation? confrontation is just our normal and all. I never think of them as being great. The thing is, we're not content. I think I've used that words in the book as well. We consider ourselves sort of always unhappy with the status quo. And there's always room up. There's always this gap that exists. If there's always a gap in regards to everything, then there's always confrontation. You're confronted the variance all the time. It's sort of a normal mode. It's the mode you're always in. And it's not like, oh, now we're going to go confront some stuff. That's all day long.

Starting point is 00:08:54 It's really the main mode we are. We're not trying to pat people in the back all day. Oh, my God, you're doing such a great job. I'm so proud of what's going on here. That's not how we talk. We talk about specific things that this is not working well. Why are these guys not come up to? It's a very, very inquisitive broban trying to understand what's going on, raising the bar.

Starting point is 00:09:15 In other words, always have higher expectations. The thing you fight in organizations is that people want to learn. let things pass. When a sales manager just to me, I'd rather have somebody than nobody, then it's like, okay, you're the wrong person. Because I'd rather have nobody than somebody who is not functioning because those become real leadership traps because everybody sees that person that's not functioning. You're not doing anything about it.

Starting point is 00:09:35 That's how you lose your leadership mojo. You can't tolerate it. You get better off when on and then taking you your time, finding the replacement. And we're creating a whole other topic, by the way. We can talk about that. But rather than suffering and tolerating mediocrity is the absolute worst. reflex you can have. So a lot of that is about making sure that someone is correct in the recruiting process, but the very best people often need to be sold. So you need to sell them on joining

Starting point is 00:09:58 you. What have you found to be the most effective, whether it's compensation, mission, responsibility, some cocktail of those things? What has been your playbook for convincing a senior talented person to join you? It depends a great deal. I will say culture sorts people because culture is not for everybody. It's for certain people and it's not for others. So your culture is very distinct. are you the right kind of person for this culture? Most people, by the way, really want to understand what does it like to work here? Is this a place where I'm going to be like a fish in the water where I can really flourish as an individual, you know,

Starting point is 00:10:31 become the best version of myself, or I'm going to be swimming in glue all day and just be frustrated with toxic culture and portions of work environments? I'm involved in a lot of recruiting, by the way. I mean, I'm doing as much recruiting our engineering leadership. They're pulling them very, very high-in talent in the world. And you know, yeah, you don't want to talk to me. They don't want to talk to my CFO.

Starting point is 00:10:50 I mean, this is almost a normal process. So they want to understand how committed am I to the vision and the mission, the business. What is the culture really, really? Not your state of culture, but your actual culture. They're very wide-ranging. They're very honest, very transparent. We're not going to tell you the story, and then you come in here and you find out something else. We're super transparent because we want to know that this is really what they're coming for,

Starting point is 00:11:15 and then it's going to be a really great fit. But, you know, recruiting is another version of sales, obviously. I also view it as another version of M&A because they're all in the same spectrum because when you do M&A, I mean, essentially where you're buying is talent. Well, you can buy it through a company, but you can also buy it through hiring people, sits on the same spectrum. How do you generate energy personally for this pace of business? It strikes me that even the most talented people get tired. Everyone gets tired at some point. How do you fight that, modulate that, control the energy source yourself as the leader of a business like this?

Starting point is 00:11:49 I personally experienced that when I stepped down at Service Now in 2017. I was tired. I've been on the firing line too long. I didn't understand it at the time. It took me literally years to understand why I felt the way that I did. But it's burned out. It's another word for being tired. I couldn't get up for it anymore.

Starting point is 00:12:06 I couldn't muster, just like you said, I couldn't muster the energy and the intensity anymore. You need to get out, which is what I did, because I felt I was no longer the right person for the company, even though things were just going insanely well. And they've continued. Now, five years later, to still go really well because the foundations we build are exceptional. I still feel that way.

Starting point is 00:12:24 And I don't always say that about stuff. So now it's actually easier for me because I don't work with the same pressures. The pressures, for me, they change over time. When I'm my first company, I was just, I had this cannot fail cloud hanging off my head in the worst way. It was like a do-or-die situation. So the level of intensity was off to charge. It was a great environment because it wasn't just me. There were all kinds of people that were sort of feeling exactly the same way.

Starting point is 00:12:52 You know, this is going to be our opportunity burned behind us. We have no way through other than winning in the marketplace. Henry Kissinger once said nothing clears to mind like the lack of options. It's that kind of a dynamic where there are no choice you're going to do it or else. Service Now was a very different deal for me because data domain was a startup. There were 15 people there, no revenue, no customers. nothing. It was a very, it was very hard to figure out what is this, but it became a terrific company. So it was now different. I mean, they already grown 100% a year. They come up

Starting point is 00:13:24 here doing 75 million in revenue. So that was a company that clearly crossed the chasm. That then also put enormous pressure on me because it's now these sounds are totally different from the ones that I previously, such an underperforming organization at so many levels, even though the numbers were quite good. Another favorite topic, you can have really good numbers and still be a highly underperforming company. Words are sometimes sort of shallow in their assessments that they get the numbers and they go, check everything is going great. Well, that's not how it is.

Starting point is 00:13:53 You really have to sort of get behind the numbers and all of that. When I came to Snowflake, I got there with a different dynamic and a different personal motivation than I had in the previous companies. I didn't feel the personal pressure as much, but I felt other kinds of pressure. So they kind of change over time, I would say depending on your own situation. what's in your history, what's in your past? Last question on people, and then I'd love to move to product. How do you foster the right kind of communication pathways?

Starting point is 00:14:22 There's that, I think it's Conway's law that you ship your org chart. Your product sort of ends up looking like the communication pathways and the health of your communication inside of a business. So what have you learned about good, healthy, especially in the leadership team, communication throughout a business? What's really important to us is that we're a highly lateral organization, meaning that the Orch chart, which is very vertical, is really not that important to us. I treat a lot of people that are officially on the Orchart report to me, and people that are actually a level below that on the Orchart, I treat them exactly the same way.

Starting point is 00:14:54 I have weekly checkings with them. I talk to them just as much. I have just as intense an interaction with them. That fluidity of an organization, the lateral nature and the network nature of it is really important because we really operate through influence, not through rank and title. influence comes from the gravitas that people bring, not just as a person in their history, but what are you saying, why you're saying it? So we debate pretty hard. And people debate me. I mean, I get called out all the time. I agree. I love that. And the reason is, I don't want to be wrong. So people keep me safe for myself. It's much more important for the organization to be right

Starting point is 00:15:32 than for me to be right. If I think about the influence that some of your writing and thinking's had on me, the idea of narrowing the focus is probably the single most powerful concept that I sort of bring to everything now as a result of reading your work. I'd love to apply this concept to product specifically. You've talked before about how products need to be sort of astounding. You've appealed the jobs's notion that if something isn't absolutely blow your face off, why are we bothering doing it? So when you're evaluating a new product or considering a new product, what is your way of thinking through that narrowing of the focus and the astounding potential of the product? Now, we actually have a word that we use internally. It's called dazzling. That's sort of like

Starting point is 00:16:11 astounding, but even more visceral in the sense that when we do something, it doesn't matter whether that's a mundane feature. We always look for ways to rethink, reimagined. What would we do if we had nothing? What would we do if we weren't under time pressure? What is the best possible instate for this thing? Sometimes it results into, well, how about not having it at all? I love those conversations. Why? Because it's just creative and it's inspiring and it takes the drudgery. One of the things I talk about in the book is the whole war against incrementalism.

Starting point is 00:16:45 I hate incrementalism because it assumes the status quo and an inches forward from there. It's a mind-numbing way to go by. So I much rather, it's like a startup. Like, I have no history. I have no past. I have no customers. I have no installments. What would I do?

Starting point is 00:17:00 Because, by the way, that's where your competition is doing. You might as well strap that one on, try it down for size. That's just a tactic and a mindset. It's very healthy. You talk about focus. I mean, I love to ask people, yeah, okay, it's February. If you can only do one thing this year, what would it be and why? When you ask people what their priorities are, you're going to get 10 or 5.

Starting point is 00:17:22 In other words, they can't whittle it down to one because they're afraid they're wrong. I'm like, yeah, I'm afraid you're wrong too. That's the whole point of the exercise is that you might be wrong. But if you have five or ten, you have none, so you've already lost at that point. It's all about amassing resources on this few things as possible. That's when you get momentum. You spread your resources a mile wide and insidap. You're already dead.

Starting point is 00:17:43 You're always narrowing what I call the plane of attack. That's a concept in the world of cybersecurity. Fewer things to deal with is a very, very powerful thing. A lot of organizations can't get out of their own way because there's too much going on at the same time. Is it possible, again, to play with the sort of edges of these ideas to have too few things? So especially at a company, let's say, snowflake size, is one too few? Like I imagine, there's more than one thing going on at Snowflake. So where can you narrow the focus down to?

Starting point is 00:18:09 Is it one thing per team, per company, per person, per leader? How do you think about that? It is more an exercise to determine a relative priority route and, oh, we're only going to do one thing. In reality, that never happens certainly in our organization at our scale. We have many work streams. We have many teams that are working on different things at the same time, for sure. but it's really healthy to step back and go like, what is the absolute most important thing that must happen this year because that becomes a more nuanced conversation, you know,

Starting point is 00:18:39 where are we going to shift the resources? If we have to shift resources, because we're always resource constrained in engineering because talent is a premium resource. If we have to decide to put this person on this project or that project, how do we decide that? That's why you have these conversations. It's not so blatant like, I'm going to do one thing, and the rest of you. Obviously, it's not. It is a conversation that creates clarity.

Starting point is 00:19:01 And by the way, people are afraid they're wrong, and I'm okay with that. Let's try to be wrong, okay, then because once you say what you think, now we can go and investigate whether that's correct or not. If you don't even do it, you're not even going to try and determine whether it's correct or not. You learn by trying things, and it's when you don't do anything, you learn nothing. That's why people put up temp priorities because they don't have to test their assumptions because they're safe.

Starting point is 00:19:25 I put everything up there I can possibly think of. they're nice, not smart now. If you take that word dazzling and apply it instead to customers, who pops to mind as a dazzling customer that you've worked with? Because it strikes me that picking your customer, especially early on in the product and in the enterprise world, can really make a huge difference in the quality of the product over time. So who comes to mind as a dazzling customer that you worked with and what made them dazzling? One of the early customers that was really dazzling to us and still is Capital One.

Starting point is 00:19:55 And I think it's well advertised that they played. a developmental role because they're a financial institution, obviously, and they have extraordinary requirements, both in terms of the computing infrastructure, the ability to replicate and fail over, all things we didn't have when we first engaged with them in 2017. So they really helped us. And also, the whole consumption model was completely new to the world. It wasn't for infrastructure storage and servers, but it certainly was for us. It's like, how do you manage that? Otherwise, it becomes a free-for-all, and your bills will be sky high and all of that. And by the way, they're great.

Starting point is 00:20:30 In the world of banking, by the way, I mean, you've got institutions that are very, very far along, digitally, like capital. And there's a whole new generational banks. They call them Neo-Banks or digital banks or whatever. They don't have any brick or mortar. They're just completely digital. And those are great, but then you also have traditional banks, and you can now come from a totally different place. And then with the lessons that we learn from these very sort of pioneering, leading-edge banks, we'd them bring to these older institutions that they're much farther behind.

Starting point is 00:20:57 We meet people where they are. Sometimes that's very advanced and sometimes that is very far behind. If you think about another job's idea, it was don't necessarily ask your customers specifically what they want and then build it like you should have some point of view. I've also seen you write about back to incrementalism, not falling in the trap of just building great general purpose technologies, but actually working backward from an actual problem, an idealized outcome. Maybe just talk through that concept in a little bit more detailed,

Starting point is 00:21:22 notion of how much opinion Snowflake in this case should have about what great product is versus asking customers what they want and building it, which sort of seems like it could be a incrementalism trap. We're not a pure Steve Jobs play where he's like, I will tell you what you like when I show it to you. By the way, I admire that greatly, okay, because he was always right. We're almost always right. But in our world, we do listen to customers and we do process their issues, things like

Starting point is 00:21:50 global search, which is a totally different type of workload. and snowflakes, looking for needles in a haystack, and particularly in security data, like, so it's really, really important. And we had customers that said, look, in order for us to use that in security data, like, we need to have this, that, and the other thing. And then we just scramble to do exactly that. The whole replication, the global data mesh architecture, also very much inspired by how customers needed to use the data all over the world, okay, not just in the single cloud

Starting point is 00:22:17 region. So we do an awful lot of listening, but again, this is a more nuanced conversation, even when we listen and we hear what the problem is that the customer is trying to solve. And by the way, that distinction also matters a lot because you don't want customers to hand you the solution. You want them to hand you the problem. We then come up with the solution. And it's not healthy when they say, this is what you need to do. No, they need to say this is the problem we need to solve. Otherwise, you're constraining the possible outcomes already prematurely. In other words, they have a view of what the solution is as opposed to we may come up with very different approaches.

Starting point is 00:22:49 Back to the Steve Jobs, example. He might have listened to. problems and requirements and what have you, but then how he goes about that can take any number of forms. And that's what the innovation and where the spark happens. I love the idea of trying to solicit problems rather than solutions to be built, consultant or something from customers. It strikes me that trust them trusting you. I mean, is probably the most critical central ingredient to like them being willing to give you problems rather than proposed solutions. So how do you engender that trust between your company and a customer over time? Trust is a notion that permeates our whole organization, not just with customers, but with investors and employees and

Starting point is 00:23:27 partners. It's every single stakeholder that we have. Trust is a huge thing. By the way, I just did a session with Pat Lanzioni, who wrote five dysfunctions of a team. I know what you saw that, recommend that people watch that because Pat, I think he is a legendary guy in terms of the organizational health thinking around trust being the foundation of absolutely everything. We're in such violent agreement about that, because when you have to, you have to be a lot of trust, everything gets easy. And when you don't have it, everything gets not just hard, but sometimes impossible. And then the question becomes, how do you get trust? Because you don't just get it. You don't get the benefit of the doubt. Trust needs to be earned very studiously.

Starting point is 00:24:07 And when I first came into Snowflake, you think people distrusted me when I walked through the door? No, the end. Yeah, they were incredibly distrusting. So in other words, my whole behavior and how I communicated and how, in other words, they just keep score of everything. you say and do, is this, does this have high fidelity or low fidelity? Are you true to what you're saying? And over time, when people are saying like, yeah, I mean, this guy is consistently true and correct me about stuff, then they start believing face value what you're saying and what you're doing. And the opposite is also true. By the way, you see it in government. Nobody believes what government says because they're wrong every single time. The reminder probably lying about it, too. So you lose trust

Starting point is 00:24:50 easily. I mean, you get loses in a blink. But earning it takes, a huge amount of time and effort and many, many instances are where you have to prove it. So it's a very delicate and extremely valuable currency and exists in every walk of life, you know, whether it's your local sports team or whatever you're involved in, trust plays your role. When you meet somebody, the first reaction people have is, do I trust this person? They may not ask that question explicitly of themselves, but it's visceral. You decide for yourself. When we're getting in the right vibe or the wrong vibe, and then you try to corroborate your impressions based on interactions and actual experience. So focusing on trust is a real thing, I think is very, very important.

Starting point is 00:25:28 I think a lot of people think they can say what they want and are never going to be held to account. That ain't true. You will be held to account. You just may not realize it. If we dig deep into trust and think about its core elements or something, the building blocks of it that are most basic, like the primary colors or something, what pops to mind, it would be like, do what you say you're going to do and clearly have the other's best interest in heart. Are those two key ingredients for you? Are there other key ingredients that you would add to that list? How do you think about like the base layer ingredients of trust? When you do with customers, I mean, Alamac, you're a vendor.

Starting point is 00:25:58 You're just trying to get the best of me. You start with a deficit, especially with procurement people. Their whole worldview is extremely distrust. I always go to incredible lengths to behave in such a way that, look, I've got your back. I don't leave anybody behind. I use those words as well, right? Those words are visceral and they mean something and they convey the sentiment. Hearing it from me is incredibly important because I'm on top of the house.

Starting point is 00:26:25 This organization has my back. Can I trust what they're saying? People are asking me, look, I've got to migrate these database. When does that take? What does that cost? What kind of risk am I running? You're just going to tell me your stories or you can do another deal. And by the way, they often ask me the question, what don't I know?

Starting point is 00:26:40 What should I know? This is a good question, by the way. I'm telling them sometimes scary stories as well, because I'm trying to lift up the veil, light up the cave, if you will, to give them a sense of. This is new for a lot of people. And the more truthful I am, the more transparent I am, the more willing I am to share difficult information, the more they're going to trust what I'm telling them. Pricing conversation.

Starting point is 00:27:05 People want to know, am I getting a good price from you or not? How do I know? And I'm like, look, you are not going to get a special one-off deal. I don't care how big you are and how big a deal you're doing with us. You're getting a price that is commensurate with the volume of business that you're doing with is I need to have discipline in our markets. I cannot have you find out from somebody else tomorrow that you are subsidizing somebody else's business or that somebody else is subsidizing you.

Starting point is 00:27:31 We just can't have that. And it says, I'd rather walk away than I go and screw up the discipline and the consistency and the integrity of our pricing. It's obviously helpful in negotiations because it's like, no, we're not going to do a one-off deal where you're better than everybody else just because we need it so badly. We're not doing it. But by the way, you know, when companies start out early in life, that happens all the goddamn time, unfortunately. And then you have to live with it for the next 10 years because they get grandfathered in.

Starting point is 00:27:55 And we have customers like that that are from way back when 2015. And they have better pricing than anybody else. And then somebody finds out about it. And why am I not getting that? Well, because you've asked from 2015, okay? And we've never been since. It's another great example of this sort of like hold the line mentality, not just on focus, but on pricing in other places. it also seems like, back to that, doing what you say you're going to do, that you can enhance that

Starting point is 00:28:19 with another one of my favorite principles of yours, which is this idea of sequential rather than parallel effort or processing for the idea that priorities should be singular. It shouldn't be priorities. You've already mentioned that. Talk about that sequential versus parallel and how that could help build trust and just build a better business in general. You can be parallel to a degree. If you're too parallel, you're what I call a mile wide and inch deep and everything slows down. And by the human nature is to go highly parallel because we always pile stuff on and we never take stuff off. Things just get bigger and bigger and then we get frustrated because things are not getting done. Then we start making shortcuts. We're lowering our standards. You get all these problems that happen

Starting point is 00:28:56 when you're too parallel in your approach. Sequentially, you get things done actually faster and also the dynamic organization changes because you sort of have uncluttered the workload. You have crisped it up. You now understand the priorities and now you have the quality of bandwidth and the amount of resources that it needs to advance fast, as opposed to, I've got so much going on. I'm just trying to get things off my desk now, and then we're doing a good enough, and sales organizations are notorious for pressuring, you know, engineering organizations into delivering things prematurely. We don't do that either. We're going to ship it when we're getting ready. Sorry, the pressure to make shortcuts is very, very great, and you need to have a lot of wherefore all integrity

Starting point is 00:29:39 in your organization to say, like, we're not going to succumb to that. Narrowing things down, we're letting things down. Again, it's a healthy process to reprioritize all the time, really crisp up. What are we doing? Why are we doing it? And to re-examine, what are there reasons? Is that still valid? Once that clarity starts to surround the whole work load, everybody gets pep in their step. They are re-energized. They now know what to do, as opposed to wondering, how should I even approach this? Just lightening up, it works in your personal life as well. You've got 50 things in the list. I mean, come on. Well, let's do five. these things up in the next two hours. Boom, boom, boom, boom. Now we've got energy. Yeah,

Starting point is 00:30:17 this was really working. You mentioned engineering, which is, I feel like even though we've matured tremendously still somewhat of a black box to those that are non-technical or aren't engineers themselves, and especially in the world of software, which is super complex, like no one gets how complex it is. What have you learned about successfully translating between business people and engineering, which seems to be a zone of conflict often in software or technology businesses? It used to be true, certainly, and I think years back, I mean, we had this enormous gap between the technology side and the business side. I just find that as time has progressed, the business side has become incredibly technical to the point where they have an easy time having conversations with the technology site. And in other words, he just can't live in this business anymore without being technical.

Starting point is 00:31:05 It's impossible. So that gap has narrowed by necessity. That wasn't true in the mid-80s and all those times. you know, these people had no clue about software. So engineers, they kind of rolled their eyes. What the hell? You know, I mean, you have product managers that have to do the translation, and yet system analysts. You recall all those jobs that existed. They were translators between people that implement and people that needed stuff. But now, and by the way, you see that in large enterprises as well. It used to be an IT was king at the hill, which still is in some place. But

Starting point is 00:31:36 now business is just as technical as IT. So their roles are shifting. And you've got a more balanced environment between what the business makes decisions on and what IT is really in charge of because IT doesn't really know how to apply technology to the business, but the business does. We see that balance changing. I have that conversation often, by the way, with CIOs who are your typical infrastructure guys, they manage for cost and risk and these kinds of things, but they're infrastructure people. They really are enablers, but they don't really know how technology impacts to business. The business does.

Starting point is 00:32:09 And I mentioned Capital One as an example. You know, they've got 30 plus business units operating against a single smoke-flake data platform. It's not IT that decides what these businesses are doing. Business decides whether they want to run this workload every night. Do they want to recalculate their auto loans once a month or every night? They decide that. They know what the business case for that is. IT has no business.

Starting point is 00:32:29 And by the way, they get charged back for the cost of computing. So they pay for it. So they make those decisions. So it's a really good example where in the role of IT and the role of business is very balanced. IT does their thing. And the business has grown enormously in terms of technology, sophistication. That's going to continue. Every business unit is going to be expert data science team.

Starting point is 00:32:50 You have to because data is becoming the beating heart of a modern enterprise. I want to say digital enterprise, but that's the same thing. You mentioned crossing the chasm earlier, which makes me think of effective sales organizations because it seems like prior to the chasm, very often a founder can do a lot of the sales themselves, founding team or a leader. and at some point you cannot grow as a business at the pace you want if the founder's doing that sort of thing. What have you learned about effective sales systems and organizations building these three companies? I've been quoted saying that it's better to sell nothing than something because if you sell nothing,

Starting point is 00:33:24 you can stick a bullet into it and move on and then reconstitute the resources, let people go down the companies that have viable and that when they have a handful of customer, they think they're viable. VCs, of course. Pump them full of dough. The founders, of course, don't. want to admit that either. They lack intellectual honesty. They just can't admit to themselves that this dog won't hunt. And of course, most dogs don't hunt. So way too many companies perpetuate out there

Starting point is 00:33:49 and get money and they are just walking dead. I can't tell you how many conversations I've been in where people like, oh, we're going to change the VP of sales or like, why? Well, we're not scaling. I'm like, how do you know this to be the sales? Could your product suck? Is that might that be your reason? Most of those problems are product problems. There's a real limit to what salespeople can do. I hate to break it to you. They look at you horrified that you would even, yeah, there might be something else. It's just a ridiculous conversation. There's this inability to look at things the way they really are versus the way they want them to be. You must be able to sell your way through it. Yeah, founder can do it because they're very eloquent and they have

Starting point is 00:34:28 all this visionary talk about the industry and the history and how they're going to change the future. And there is a sliver of customers, the early adopters, the classic early adopters, in the Jeffrey more sense. That buy that. But hell, they buy everything else too. Never seen anything in life. That's not the market. That's why it's before the chasm, not after the chasm. You have not crossed the chasm when you sell those people. Cross the chasm when you can sell mainstream marketplace. This is a whole different deal. You're no longer in business development. You're in sales. Sales is a highly scalable, repeatable, predictable, yield, ramp type of process. It is completely different from business development, which is a one-off approach. Every customer is a one-off.

Starting point is 00:35:08 situation. Founders can often make sales in all situations, but don't confuse that with viability. So let's assume we have a product that is great, and therefore we should be able to support a sales organization. How does something like compensation figure into making, getting more out of that organization? So all things product equal, they're great and probably just good sales organizations. So what distinguishes one from the other? Well, I mean, we've been running very high Velocity Sales Organization for the better part of the last 20 years. We viewed at us core competency. I mean, the leadership, how we do that.

Starting point is 00:35:41 I mean, we can write another book on that topic. That's an enormous topic. I just can't even begin to characterize it a few sentences. Developing your own distribution capabilities is a very, very high value. Most companies think like it's told about the technology. If you master your own distribution, you become insanely powerful. I mean, we really proved that a data domain, by the way, because it was storage.

Starting point is 00:36:03 Everybody used OEM models because they wanted to sell through EMC or Etachi or IBM or HB. Why? Because hell, nobody wants to buy from a startup. Something as foundational storage, so there needed to be a big name behind it, otherwise you just couldn't sell it. We came out with data domain. Of course, all the competitors we had,

Starting point is 00:36:21 and there were a lot in that space. They all had OEM relationships. We decided, you know, we're going to operate more like an enterprise software company. We're going to sell themselves. And we became insanely good at selling it ourselves. We learned how to manage the channel and all the dynamics that were in that side. We had a bigger exit than all other companies combined. We were 15 times the exit of the next

Starting point is 00:36:43 company in the space. The point is there's huge value in mastering and controlling your own distribution. You own your own destiny. If you try to farm out your distribution, you're beholden to another entity. I think that's incredibly unwise. I think over time, the marketplace has figured out that, yeah, that whole OEM model has gone by the wayside. And I've seen many storage companies come and go since that time. That didn't go the OEM route. That's not in your DNA selling. We're all selling all day long. If you don't realize that, you don't know what your job is. That has to be so important to you. And demand generation and all the disciplines that basically make up the drive train of the business, it is so incredibly important. You have to be a student of that.

Starting point is 00:37:28 and it's a machine that has to be highly repeatable, highly scalable, and very predictable in terms of the yield versus investment that it takes. I talk in the book about the differences between being an embryonic company where you just try to build a product that you hope has a prayer. The form of the stages when you try to cross the chasm, you try to connect with the opportunity and built repeatability to the point where you can get to the other side of the chasm and you move to scale. Scale is a totally different mode than being in the form of the stages where you're sort of in the desert looking for water very opportunistically. That's not what happens in the world of scale. That is now massive systemization and methodical execution and resorption. And one of the issues I had with Snowflake, the Snowflake was a company that had to clearly cross the chasm when I got to it. But they were behaving like they still were in the chasm.

Starting point is 00:38:19 I mean, the insanity of that, they couldn't recognize when they had to ship gears. The opposite also happens. People are in the chasm. They try to scale, but they're not ready for it. So they waste immense amount of resources because they can't scale. They're not ready for it. So you see these impotence mismatches all the time. People think like being in business, it's all the same thing. No, it changes dramatically from one stage to the other, the modes of execution. If you think back on the three companies and think about the sales orgs and each, how different were they from each other? Or another way of asking the question is, how much does a sales org need to kind of work backwards and be built a according to the specific product versus there being some sort of general structure principles that sort of apply no matter what you're selling? There are principles and ways of thinking that transcend companies and eras and technologies and so on. But there is not a blueprint that you can just mindlessly project what some people call it playbook. Like here's how you do it. That's a real problem. When I first joined Snowflake, I mean, in disbelief for the first I don't know how many weeks about how mindlessly they were trying to scale sales organization.

Starting point is 00:39:25 They had a five-layer management model. What is this IBM or something? It's just absurd. What are these people who do? I mean, the most foundational questions, they couldn't answer like, what are these people doing here? Management, by the way, in sales is by far the most important. I mean, you're going to rip out any other layer.

Starting point is 00:39:40 But the combat unit, so the direct reps and the first-line manager, that's really what makes up a sales organization. Everything that comes above that, I call them the post office, passing on the news, slamming bodies to an orchard. And that is not how you add people with sales organization. You got this looking at your archyard, oh, let's put somebody in Seattle today. There is, again, we can write another book about this, about how thoughtful you have to be,

Starting point is 00:40:04 because when you put people in territories, they need to have all the enablement and the and the leadership around them, the research around, so they can't succeed. You can't just give somebody a bag and a quota and say, let me tell me what you're going to close next month. That is what people do. They think like, well, you some people out there, they'll figure it out. No, they won't. I've seen whole regions, I call it flatline. You know, they're at zero, quarter after quarter after quarter. Why are you flatline? But once you go examine,

Starting point is 00:40:29 okay, what's going on there? You'll find out in the hurry why they're flatlining. And then we have other pockets that were ripping and roaring. Well, there are also reasons for that. In other words, just understanding how things work, it's really important rather than mindlessly implementing a blueprint or a playbook. Do our playbook is the worst words I hear because we just came up with Super Bowl. They think it's like a football team. You just throw the playbook at a company, and poof, you're successful. Unfortunately, playbooks is the worst reflex because you want to throw the playbook out and be first principles and situational and understand things as they are and then go from there. Well, I've seen this before. I've done this

Starting point is 00:41:05 before. Boom, boom, boom. Here we go. The founders of Data Domain started another company after Data Domain. The Day of the Main was an insanely successful company still to this day. They just decided that we weren't around anymore because we're at service now, that we're just going to do exactly what data domain did. Hired the same people, do things the same way. I mean, almost unbelievable. Run the playbook. They went sideways for 10 years, burned an enormous amount of capital and was sold for asset value because they just think like, how hard can this be? Let's do the same stuff

Starting point is 00:41:36 and it'll work. No, it won't. I've seen you talk a lot about board accountability and asking the question of what is your growth model, like at every quarterly meeting. That and what other questions are great for board members to ask their leaders? their CEOs. Growth is incredibly important, not just because we like to be a high growing company and it creates valuation and all that, but growth is what separates the winners from the losers. That's how you get into a winner takes all, a winner takes most type of a model. Growth is strategically important in any way you can think about it. So growth is not on your mind. You don't know, at least in our world, you don't know what your job is. It creates value.

Starting point is 00:42:13 It creates a strategic separation. So it's a pretty damn important question to ask is, okay, what are the limits of growth? And what are they? That's how much. What can you do to drive your growth to higher levels? And when I first interview with Service Now, they were growing close to 100% of the year and they were immensely, but which I can understand because there is a lot. But I was just asking very innocently, like, could you grow faster? And they were incredibly pissed off about that. I were going to question from this guy from Silicon Valley. I didn't mean to piss anybody up. I just wanted to understand how they thought about it. Well, they hadn't thought about it. It's just something that happened because they tried really

Starting point is 00:42:50 hard, and this is what happened. But there was no mindset. And by the way, I mean, the other thing about service knowledge, I mean, they were so under-resourced at every turn, insanely. They had a founder, CEO, really good guy, by the way, but the CFO was fundamentally running the company on a day-to-day basis. And they have put $15 million in the bank from operations. They just weren't investing. They just weren't. They hit like 16-quarter carrying wraps to start the year and the end of the year. They're still at 16-quarter carrying reps. Never mind, the business had double. Sales productivity was great, and they were proud of it. It's actually stupid.

Starting point is 00:43:21 You know, in high growth companies, self-productivity should be turning sideways or down. That's how you know you're hiring fast. It's like, look, I found that stretching and leaning in harder and harder will reveal to you what your growth model really is because this is a very hard question to answer. But trying it is going to teach you where the limits are. And I have never overdone it in terms of leaning in. I have underdone in hindsight many times because I just like other people, you know, I was a little skittish and afraid that we're pouring out so much resources and then we can't convert on it.

Starting point is 00:43:53 That's the reason why people don't do it. But you need to explore these boundaries. How far can I go? And what are the signals that I can't possibly get where I'm overdoing it? By the way, if you're still in the chasm, we're overdoing in a hurry because you're not ready to apply resources and then you can't. You'll have sales productivity problems up to a zoo. That's very common. But even in scale, companies that are ready to scale, what are these limits?

Starting point is 00:44:16 and then, by the way, can you push these limits out? When you're leaning harder, as you're finding these boundaries, you're now also learning how to move those boundaries. You think there's a reason, you know, why Snowflake got more than a billion dollar of revenues currently still growing north of 100%. Hasn't happened in the history of enterprise software to grow at that level of scale. There's lots of reasons why that happens, okay, because when you break down growth and all the different elements that go into it,

Starting point is 00:44:43 I mean, all of them have to be thought about, managed and resourced. I'll give you an example. I mean, one of the things that we insist on, and I say we, because that's to be an organizational thing, everybody shows up every quarter. The one thing that I don't want to hear is like, well, you know, in Australia, on January,

Starting point is 00:45:01 everybody's a vacation or in August, everybody in Europe is no vacation. Don't care. Everybody shows up every quarter. There is not an excuse for not showing up. It's a discipline. It's a mindset. It's a commitment.

Starting point is 00:45:12 It's not like, I'll make it up later in the year. We don't have years. We only have quarters. Quarter is like a year. Excuse us, you know, when COVID happened, you know, very quickly, you know, I started to get COVID, COVID, COVID. So I don't want to get that word anymore, okay? COVID doesn't exist as far as we're concerned.

Starting point is 00:45:27 And by the way, the company has blasted through COVID like there's no tomorrow. Because the moment you allow it in your head, you're dead already. There are many ways to instrument an organization that it knows what is expected. You end up on a much higher growth trajectory than you could possibly, you know, imagine. because growth is not mystery. It's just mechanical. It's just what can you do? How quickly can you do it? What's the productivity? What's the ramp? What's the conversion? It's something that you can break down and improve upon over time. That's the conversation that should happen in board meetings, but, oh, we were 30 percent and then they're high-fiving and doing a victory lap. That's just nonsense. Why isn't it not 50 percent? Is the real question? We're 100. Pick a number. Not all analogies are perfect. They often fall down.

Starting point is 00:46:08 I'm curious to hear where you think the analogy of business as war falls down. I'm thinking of the Highlander analogy I've seen you put out there, which I absolutely love. I'd love you to tell people that one because I think it's a good example of compounding benefits to the market leader. So maybe you mention that what you mean by Highlander as a concept and what the limits are to this concept of business as war, if any. Government can print money and they do plenty of it. The rest of us, we have to take it from somebody else. And once you come to that realization, you also find out that they're not going to take kindly. to the fact that you're taking this from.

Starting point is 00:46:36 So the bigger you get, now you become a looming threat and they'll fight back with everything they have. It does feel like war and not war in the sense that people are going to die, but companies are going to die. Companies are dying every day. They don't reach viability. And then a lot of old ones that were successful ones are basically decaying on the vine.

Starting point is 00:46:55 I mean, how many of those do we have out there? It is a very visceral battle. But the way you know you're winning, first way we need to define what winning is. I've always quoted U.S. Grant and other people. You know, they define victory as breaking the enemy's will to fight. It was not just killing them. It was breaking their will to fight.

Starting point is 00:47:15 You can do it in a number of ways, but in the world of software, you break the enemy's will to fight when you are hiring their people because they have given up. They'd rather be with you than they are with the other company because it's too hard and too painful and they're not making money. So I'm going to join the winner instead of stick with illusion. That happens in our world all the time. That is the Highlander analogy, because every time the Highlander kills another Highlander, he takes on the strength of the Highlander. The same thing

Starting point is 00:47:43 is true in software. I'm hiring a top salesperson, top engineer from another company. I've taken their strength now into my organization. It's not just that I gain theirs, but they lose theirs. So it's a double impact. I work in them and I strength it myself. You've done a lot of honing of your methods across a number of companies, a lot of years. what do you think still you have left to hone? Like, as you think about continuing to improve the apparatus, what has you most interested in terms of improvement? Well, everything revolves around talent.

Starting point is 00:48:15 That's never ending. I never think, like, I have arrived at a place where, oh, you know, declared victory now. It's just we are too paranoid and too high fear of failure to ever allow ourselves to think along those lines. Yeah, we've had really good runs and great companies and all of that. That's great, but who cares? Okay, we're in a new dynamic now.

Starting point is 00:48:35 So it's like when you start a new quarter, nobody cares what you did last quarter. That's a healthy dynamic. But the talent game is really, really hard, and it's the blood of an enterprise. You cannot run companies with mediocre people. You simply can't. You're not going to make it. You're not going to survive. It's absolutely everything, and there is not that much of it.

Starting point is 00:48:55 You remind me of one of my favorite Isaac Asimov quotes, that past glories are poor feeding. one of the quotes on my desk. Yeah, well-fed. Well-fought. Yeah. This has been a ton of fun. I ask everyone that I talk to the same traditional closing question.

Starting point is 00:49:09 What is the kindest thing that anyone's ever done for you? The kindest thing that people ever done for me, I mean, they hired me. My personal history, you know, being a foreigner in this country and speak with a fat accent or more so, you know, 30 years ago than now, I had credentials that couldn't even pronounce, let alone, understand what they meant. People need to take a chance on you. One of the reasons that I am a fierce executor. Where that comes from is that I had to take on really lousy opportunities and then massively exceed

Starting point is 00:49:36 expectations in order to be viable as a person in business. That's where that ferocious mentality comes from because I didn't have mainstream credentials and I couldn't make my way into the business world in this country the way everybody else did. So when people took a chance on me, they really took a walk on the wild side. Is that the kindest thing? Yes, it is, because they took personal risk. When I got hired in my first CEO job, I'm still immensely grateful as Neil Busry

Starting point is 00:50:06 at Greylock, who's obviously the CEO workday, founder of Workday, and then, you know, Scott Sandell, who was at NEA, they decided, yeah, this guy ain't going to lose. Took a chance, and then, obviously, things get better and better from there on. It's not a coincidence that my career took off once I got my first CEO job, and the reason is it'll lend itself to my natural intuitions and reflex, In other words, I didn't need to be held back anymore. Well, Frank, your writing and thinking has sharpened my own, and I'm sure many others.

Starting point is 00:50:36 I'm really appreciative for your time today. Great to meet you. And thanks again. Thank you. If you enjoy this episode, check out join colossus.com. There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning. You can also sign up for our newsletter, Colossus Weekly, where we condense episodes to the big ideas,

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Invest Like the Best with Patrick O'Shaughnessy - Frank Slootman - Narrow the Focus, Increase the Quality - [Invest Like the Best, EP. 265]

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