Invest Like the Best with Patrick O'Shaughnessy - Zac Bookman – How Government Works – [Founder’s Field Guide, EP.10]

Starting point is 00:00:00 This episode of Founders Field Guide is brought to you by Microsoft for Startups. Microsoft for Startups is a global program dedicated to helping enterprise-ready B-to-B startups successfully scale their companies. The program has been around for a couple of years, but I recently became intrigued when former Invest Like the Best guest, Jeff Ma, took over. Microsoft for Startups provides companies access to technology, including Azure Cloud and GitHub, coupled with a streamlined path to selling alongside Microsoft and their global partner ecosystem.

Starting point is 00:00:28 Microsoft for startups has a very compelling approach to working with startups and driving their long-term business value. If you're a founder running a B2B company targeting the enterprise, you should definitely check them out at startups.microsoft.com. To hear more about the program, stay tuned at the end of the episode to hear from me, Jeff Ma and Greylock partner, Sam Motamity. This episode of Founders Field Guide is also brought to you by NetSuite. If you're an entrepreneur, you know how hard running a business is. Don't let QuickBooks and spreadsheets slow you down anymore. Sweet makes running a business simpler and faster. Whether it's centralizing your multiple payment systems, ditching old spreadsheets and outdated software, only NetSuite gives you the

Starting point is 00:01:06 visibility and control over your financials, HR, inventory, e-commerce, and more in one place instantly. Whether you're doing a million of revenue or hundreds of millions of revenue, join the 22,000 other companies using NetSuite right now to save time and money for your business. Schedule your free product tour right now at netsuite.com forward slash invest. That's netsuite.com forward slash invest. Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Founders Field Guide. Founders Field Guide is a series of conversations with founders, CEOs, and operators

Starting point is 00:01:38 building great businesses. I believe we are all builders in our own way and this series is dedicated to stories and lessons from builders of all types. You can find more episodes at investorfield guide.com. Patrick O'Shaughnessy is the CEO of O'Shaunicee Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaunsi asset management. This podcast is for informational purposes only and should not be relied upon as a basis for

Starting point is 00:02:09 investment decisions. Clients of O'Shaughnessy asset management may maintain positions and the securities discussed in this podcast. My guest today is Zach Bookman. Zach is the founder and CEO of OpenGov, a budgeting and financial management software for local governments. Before he founded OpenGov, Zach was an advisor to U.S. Army General H.R. McMaster in Afghanistan, a law clerk and a Fulbright fellow studying corruption in the Mexican government. This conversation is one of the most unique and wide ranging of any I've had on the show. We cover how Zach built a world-class sales organization, why you should build momentum in your business, and the role that capital efficiency still plays in building great companies. We also dive into the details on how local government works

Starting point is 00:02:49 from mayors down to school board meetings. Please enjoy my conversation with Zach Bookman. So Zach, I always try to think of an interesting place to begin these conversations, but I don't know how hard I need to work for this one because we're going to talk about a topic that I've never covered before, which is how the government works and why software businesses may be interesting to build in this sector. Everyone always wants big markets. I don't know if there's a market bigger than government. Maybe you can begin by explaining the origin stories here, both for you and for OpenGov. Why what you did prior to OpenGov brought you to that point and kind of what the point of origin was for the business itself.

Starting point is 00:03:26 Thanks for having me, Patrick. Really excited to be here. I grew up near government. I grew up in the Washington, D.C. area. My father was a civil servant. In D.C., everyone knows someone who works in government. It's an industry town. When I came out to the valley and we actually started raising money for OpenGov, it's kind of funny,

Starting point is 00:03:44 but a lot of investors said, this is crazy. I came to the valley to get away from government. I don't want anything to do with this. I studied government. I went to law school. I did a master's degree in public administration. And then I went down to Mexico and studied corruption in the Mexican government on a Fulbright fellowship. I had a brief law career. I was a law clerk for a federal judge and then a trial

Starting point is 00:04:04 litigator and then went overseas to Afghanistan. I served as an advisor to U.S. Army General H.R. McMaster on the Anti-Corruption Task Force. And we started OpenGov, four of us. I was living in half a shipping container with two soldiers in Kabul in 2012 when we got this off the ground. Our chairman and co-founder Joe Lonsdale, who was a co-founder of Palantir and two really bright young technologists from Stanford got it going back in the valley. Basically, for the prior couple of years, this is like 9, 10, 11, we've been studying the California budget crisis. Post recession, all these governments about to hit the wall. Three in California actually went bankrupt. 12 were predicted to go bankrupt. And we were coming of age wondering like, wow,

Starting point is 00:04:48 how is this possible? These bedrock institutions aren't on bedrock at all. And as we dug in, we saw they're using like 30, 40-year-old green screen ERP systems, back office stuff using Cobol and DOS. And we were like, this is crazy. And we started talking with local governments, budget directors. And we're like, hey, give us your budget data. And they'd be like, how do we do that? And I'm like, you're the budget director.

Starting point is 00:05:13 What do you mean? How do you do that? And they said, well, come sit with us and look what we're dealing with. The city of Palo Alto had paid 10 million bucks to a German software conglomerate for an ERP system. was delivered on 20 discs and had green screens. We were a little naive, little courageous, a lot of credit to Joe. Just, hey, when the world's supposed to be operating up here and it's actually operating here, that's a lot of white space for our company.

Starting point is 00:05:39 And we just dove in and built a product strategy and fought our way to building categories. We're going to come back to what the original product was and how you built it and sort of what that whole state and government, federal level government systems look like. But I want to go back to prior to OpenGov starting your experience in Afghanistan. How did you get there? What exactly were you doing there? And what lessons looking back on it do you pull from that experience? So a guy I know helped author the Surge in Iraq and was one of the brain trust of General Petraeus.

Starting point is 00:06:11 And I was talking with him. This is while I was practicing law. He said, wait a second. You studied corruption in Mexico and your trial litigator or criminal experience. These guys would kill for your experience. I'm going to call the general right now. and General McMaster was leading the task force. General Petraeus had set it up.

Starting point is 00:06:28 And General McMaster wrote me and said, I want you on my strategy team, son. It took a year to get the contract. They sent me to Blackwater to shoot guns. And then I went over and it was a surreal experience. I mean, I showed up in a sport jacket. Everybody's in, you know, fatigues. And they're like, who is this guy?

Starting point is 00:06:46 And there was a lot of, I'd say, civil military friction that had to be worked out, ended up helping to run a rule of law team that was one of about half a dozen different teams on this anti-corruption task force, which was at the International Security Assistance Forces headquarters, which is next to the embassy. And it's a military base. But we were advising the Afghan Attorney General's office on investigations and prosecutions of high-level corruption cases. You might remember like the Kabul Bank scandal, that kind of thing. What do you take away from that time that you think has applied or helped you in building OpenGov or anything else that you've done in life since?

Starting point is 00:07:26 A lot of lessons. Thematically, OpenGov, we build and sell back office systems to power more effective and accountable government. A lot of the work I've done, my passion is to have an impact, help people at a scale that really can make a big difference. So there's some thematic thread around transparency, openness, and anti-corruption, even budgeting. A budget is anti-corruption tooling.

Starting point is 00:07:49 But really, it's about how to get large. groups of people to align and execute. And that's the name of the game, whether you're building a company or whether you're running a government or a task force or a nonprofit. It's so difficult. In Afghanistan, I saw General McMaster and General Allen and many others working, it's incredible, deployment hours, as they call it, 18, 20 hours a day, six and a half days a week. And you're bringing together not just four or five different services, but the entire interagency bureaucracy, and then the foreign consulting community and contractors,

Starting point is 00:08:28 and then locals and warlords and government. And it's just like, how do you organize that? How do you align that? And I can't say we succeeded every which way from Sunday, but I can't say that it was an incredible learning experience. For me, and frankly, a lot of the folks that were there who developed a lot of respect, not just for the coalition, but for all the partners and, of course, the Afghans,

Starting point is 00:08:51 who fought heroically for like 40 years. So if you're trying to align a large group on a big mission, what is step one? I think you have to have a strategy that actually makes sense. And that might sound obvious, but I've executed on strategies that were just wrong. It's a little tougher to align people and communicate when it's the wrong strategy. And even if you can align them in communicating, you're kind of running off in the wrong direction down the field. I think you've got to have clarity of that mission. I saw a lot of different missions being executed on in Afghanistan.

Starting point is 00:09:24 It's extremely confusing. And I don't want to over-lawyer it, but if the mission is to stop any and all terrorism, that's not achievable on its face. So how do you set up a mission that is both bold and ambitious, but that also makes sense and people can align by and at least has the possibility of being achievable? And then I think you've got to inspire people.

Starting point is 00:09:46 That's one of the hardest things for a leader to do. and it's one of the most important. But you've got to communicate clearly and also just speak to people's hearts, guts, as well as their minds. At the start of OpenGov, what did that step one look like there? I'm assuming it's not an easy task to go build vertical SaaS in the space that, as you say, previously the solution is delivered on 20 disk drives and green screen format. What did that original alignment look like?

Starting point is 00:10:11 What did the vision look like that allowed you to get a foothold? We've been fairly consistent mission-wise, and it's obviously a very very, broad mission to power more effective and accountable government. But I found since early, it was very attractive. People are selling ads. They're building widgets. Most of these companies have a great story about how they're changing the world. And it doesn't fully ring true for a lot of people. We've had many problems. I've made tons of mistakes. But the mission and inspiring people on it has been one that has worked out fairly well. And I think it speaks for itself. I mean, I hoop and holler like most other founders and have a good time while doing it. But I think people really want to have an

Starting point is 00:10:52 impact. They want to come home at night, tell their parents, tell their kids, look what we did for the world. Look what we can do over the next five or 10 years for our communities and our society. And most jobs, you don't get to do that. And I think in some you do, and that gets very special, very fast. There was a really interesting chart or table in an article that I read on OpenGub that sort of shows the status quo of like a government system. I want to really lay the groundwork for people here because I think most people understand government. They vote in elections. They understand probably services that they consume. But it's a pretty opaque system overall. Like, I couldn't really tell you much about how mayor's job looks. Like, what does a mayor do with their

Starting point is 00:11:34 time? Or what does a major elected official do with their time, a city manager or something like this? So maybe you can sort of paint the picture for us in as much detail as, possible, kind of what the levels are that matter, maybe starting from hyperlocal all the way up to federal. Just give us kind of the background of what the system looked like when you arrived at it. A general purpose government is like a holding company. No one would go pitch you or Bill Gurley for an investment on a startup idea and say, hey, I want to pave roads, educate kids, process sewage, and generate electric power. Patrick, you want to invest in my company. That's pretty much what a general purpose city or town is.

Starting point is 00:12:13 is and does. We collect for-profit and nonprofit business lines into an incorporated entity. The shareholders are the residents or citizens. Those are stockholders, if you will, just trying to paint a picture. They elect a board, and those boards are called councils or boards or 20 other names. The board appoints a CEO. It's a chief executive or administrative officer. They often have diminutive titles, which is kind of confusing for a lot of folks who are just going about their lives. It's called the town manager or the city manager or the city administrator or there's 20 other names. That person appoints an executive team. And that executive team typically consists of some executives but also general managers of those business lines that we talk about.

Starting point is 00:12:56 Police and fire and a librarian and someone to recruit businesses and run economic development, what have you. So the first thing to debunk is most people think the mayor is like the chief executive of a government. That's only the case in about less than one percent of our names. nation's local governments. Our nation's local governments are run by a manager. The mayor is the titular chairman of the board. And it's often just a rotating position. So they get to wear the purple crown for a year. And then they cut a few ribbons and move on. That's the design of like the standard city or town, probably where you grew up. And I'm speaking about the mind run of our say 19,000 cities and towns in the United States. There's another 16,000 townships, by the way. And I'll talk about counties.

Starting point is 00:13:40 there's 3,000 counties, there's 13,000 school districts, there's 20,000 special districts. I'll bore you with that in a second. And then there's probably 20, 25,000 state agencies. So we live in a massive amount of democracy. Counties are subdivisions of states. They run roughly similar. Most are general purpose. Special purpose governments are like a mosquito abatement district or like a sewage plant or sometimes an electric power utility or even the Golden Gate Bridge. and they're organized somewhat similarly, but they have one purpose, and that's say to run the Golden Gate Bridge. So you drive across, you pay a tax, they collect revenue, then they determine how to spend it on paint or suicide nets or maintenance and kind of run that government that way. So that's your local governments, special districts.

Starting point is 00:14:29 States are, I suppose, big general purpose governments, but that's the essence of our federal system. You've got a federal government and a state government. and states are, as we just saw, you know, in the past week, fairly autonomous, and we truly have a federal system, and contrary to many other countries that we're friends with and admire. And then you've got this sprawling federal bureaucracy. Most people think government, they think federal. And probably half the total tax dollars and revenue roughly goes to and is spent by our state and local government. So it's really where the government rubber hits the resident or citizen road. And it's where most of us will interact with government, most of the time. Such an interesting like Russian nested doll of those systems all the way down.

Starting point is 00:15:11 I really like the idea of it being like a holding company, like this strange collection of services, many of which kind of are unrelated to each other, but we all sort of have come to expect as citizens of whatever town or municipality you're talking about. Say more than about the role of budget in all this. Like it's hard enough to imagine being someone sitting on top of all these disparate services and generating tax revenue and allocating it appropriately. And I think probably the approval ratings for a lot of government surveys are quite low. Just talk through like how money flows through this system and why it's a mess and why I think it's hard to get things done.

Starting point is 00:15:48 So the budget is the heart of a government in some sense. I mean, it's kind of why we have a government. Basically, we set up these entities. They have a coercive authority to raise revenue. And that's your taxes. but, I mean, a huge long tail of fees and fines and other revenue generating activities. They often run businesses. They may run them as nonprofits, but they sell electric power, do inspections, permit fees, whatever,

Starting point is 00:16:14 get a bunch of revenue and then have a big pie fight about how to spend it. What we've set up in the United States is to bring that pie fight pretty close to the people whose money is being spent. And so an interesting lens is actually through selling stuff to governments. they say that it's the closest you go to the people. So school districts are really close to the people. Everyone, like parents go, people fight, they shout at each other. And people who sell technology to school districts, you know, are often in a lot of pain.

Starting point is 00:16:44 Because everybody's got an opinion. It's really hard to make decisions. They kind of want consensus for the decision. You never get consensus. It's too hard. And then you move up, you know, towns and the counties and states and federal. And you get increasing distance from the people and a little. more authority to operate and move its speed. So the budget itself is an anti-corruption device. I think it

Starting point is 00:17:06 came from like the Napoleonic wars or something where the European nations were spending money so rapidly that they eventually realized, you know what, we might actually have to like plan out how we're going to spend this money. You don't probably live your life saying, I'm going to do 47 restaurant dinners during weeknights this year. And we don't live our lives like that individually. And yet a government, it's amazing the level of depth. Most people think, most lay people I talk to or many, think that there's like a line item in a government budget that says like fraud and there's another one that says waste. And one says abuse and corruption. And they're like, if I was running that government, I would snip that right out.

Starting point is 00:17:46 Turns out it's not that easy. It might be a 300,000 row Excel spreadsheet with 77 tabs all interlinked, boiling down like literally we're going to buy three refrigerators for machine shots. at the Parks Department. It runs down to a high level of detail. And the reason we do that is so that we can actually track the taxpayers' dollars, spend them well. In my personal opinion, it's darn near overkill because the amount of back office work going on in these governments is extraordinary.

Starting point is 00:18:13 It's Byzantine. It's extremely complicated. There's large numbers of people doing accounting and figuring out where the money goes, and it's all running different funds. Another thing that people think they get that gas tax, why can't they lower this fee or something? All this stuff is in different bank accounts. And there's actually rules and regulations that you typically can't spend like electric power fees on like somebody's pet project over there.

Starting point is 00:18:38 It's very complicated. It's highly regulated. And the problem is we did it to ourselves. We make the rules. We are the people. But I'd say the budget is the planning device. It's extremely important. And the accounting system is where you track every dollar and where it goes.

Starting point is 00:18:53 And every government's doing this. How do you think technology can help shake up the, system and the effectiveness of all of this. Because if you think of local governments and all governments is sort of like this interesting bundle of services that we can kind of opt into based on where we live. I guess there's not a ton of variants like everywhere has a police department, I guess. But there's a range of the quality of these services. If you think about this from the citizen standpoint where the citizen is the customer is how I'll frame it, how do you think technology can enter this picture and potentially make government better and that

Starting point is 00:19:27 bundle that we receive better for all of us. There's a bunch of ways. I'll start from maybe the things that are mundane and move to a little more ethereal, I suppose. But the less people are doing hammer and tongs in Excel and access and building budgets with bubble gum and toothpicks and string wrapped around it, the more they might be getting strategic and planning on behalf of the community. So there's just a huge amount of manual labor that can be saved.

Starting point is 00:19:54 And this is going on in all sorts of verticals, all sorts of industries. You know that story. That's the promise of vertical software. It's really the promise of the cloud as well. Number two, and this might speak to your point, bringing the people closer to their governments is generally a good thing in terms of alignment, trust, getting things done. One city manager I talked to, put it to me this way. He said, trust is the coin of the realm. If you have it, you get things done.

Starting point is 00:20:24 If you don't, you get nothing done. And we see that in companies. We see that all over the place. And technology can help you publish the budget, engage with your citizens, open up, operate. They have to operate in a glass house, but how many soccer moms and dads who are working late can go to the city council meeting at 6 p.m. on a Tuesday and stay till midnight and so on, put it online. It's 2020.

Starting point is 00:20:52 And there's a lot of things in areas that technology is helping to kind of get citizen sentiment, including even AI and mapping all social media and so on, but even mundane stuff like publishing the numbers in a way that people can digest it and putting meetings online. I'd say three, you can kind of get normative in the technology and actually change how people work. So rather than just mapping business processes and putting that stuff in the cloud, you can build processes and say, this is the way it's supposed to be done. Contractor is getting plans approved to renovate your house, Patrick. They should only have three steps, not 37.

Starting point is 00:21:26 and they should be able to pay online. So this is the way our technology works. And there's a lot of really exciting frontiers there to make people's lives better and frankly generate even more revenue or, you know, or better capabilities for the governments themselves. Do you think there's a chance that technology can enable an explosion in how we perceive the interaction that we have with local governments in this, like I'll use permitting or something like that?

Starting point is 00:21:52 It seems like we sort of have Stockholm syndrome. Like we're just so used to it being a terrible. experience. It's hard to imagine the rest of my life, it not being a terrible experience every time. People say technology fixes these problems, but in government seems to be far behind a lot of other industries. Are there just structural issues with government that will make it stick that way? So 20 years from now, if I build a house, I'm still going to have a nightmare of a time getting permits, or do you think that we might be facing a seismic change in that world? So yes and no. I think government is going to be persistently 10 to 15 years behind where you would want it to be. And that's a

Starting point is 00:22:30 structural issue. We actually design these organizations, Patrick, basically did not make decisions. You don't design an organization like this if you want speed. I sell software to state and local governments. Many of our purchases have to be approved by the board. How many company boards need to approve a software purchase? It's kind of crazy. Even an expensive one, you typically don't take to the board. And yet, I mean, over 25 or 50 or 100K, you've got the rec baseball coach is like weighing in on it and approving. The nation city managers know this. They're not dumb. They sit there frequently chairing a meeting or helping to run things and they take it so much flat from the public, but they know what they're operating in. And they're like, you voted on these rules. I'm playing in your system. There's a lot of procurement

Starting point is 00:23:16 rules designed to be deliberative. It's designed to think not quarterly like, say, a public company, It's designed to think out decades. We want governments to protect us from criminals, to think about natural disasters, to build 20-year plans, even 50-year plans sometimes. So this is about how to like take a community across generations for a lot of these local governments. It's not about the number one goal is not to operate efficiently. I would say the number one goal is to act with the will of the people as efficiently

Starting point is 00:23:48 as possible. And that's very different. That said, look, I think this COVID crisis is accelerating local government in a way that we haven't seen in 20, 25 years, maybe even since the advent of public administration schools or like McNamara in the era of great leaders going into government as a noble duty. There's something really powerful happening every government, getting laptops, getting online, getting video conferencing, getting cloud technology. I'd say the cloud revolution is meeting local government. It's happening fast and furious. I'd love to discuss for a while the lessons that you've learned building vertical SaaS. And before we do that, I think we have to mention that this is a very regulated space that you're operating in. And so I'd love to generalize those lessons overall, but also with a mind towards working in a regulation framework that can be challenging.

Starting point is 00:24:36 Because I think while it makes it probably harder to do, it may also result in a business that's stickier and longer lasting and better for investors and founders and everything else. So I think it's really interesting. Maybe you can begin by just telling us what vertical SaaS means to you. What does that concept mean if you wanted to build a new vertical SaaS application in some space? Again, back to first principles and step one, what would you do first? What are the early steps to building an effective vertical SaaS program and system? Vertical SaaS is basically trading off Tam, total addressable market for market share. And you get more market share essentially by having more features in your suite,

Starting point is 00:25:13 features that are configured or even customized towards the needs of your vertical. So OpenGov is a solid example. We focus just on state and local governments. They actually do have unique needs. First and foremost is multi-fund accounting. I described all those bank accounts. Those are different funds. In corporate accounting, you sell goods and services.

Starting point is 00:25:33 You get revenue, you dump in your bank account. A government's totally different. You raise revenue in order mostly to give away goods and services, and you have all these different bank accounts that actually have governance structures. So your accounting system, your budgeting system looks very different. most businesses also don't need a permitting system. So there's tons of features and capabilities to sell to a government. If I can build those and build them well, I should be able to beat the horizontal cloud

Starting point is 00:25:58 or service providers every day of the week. And that's why I'll win market share. If I can't, I'll lose, but I should beat Workday selling to government because Workday takes its suite and sells it to pharma and insurance and retail and manufacturing. And they've got to configure it. And if they can configure it, spend millions of dollars in consulting fees doing so. And we should be able to do that mostly out of the box with a lot more features. So that's the promise of vertical SaaS.

Starting point is 00:26:22 You're not going to get your $100 billion companies typically, but you might get your $5, $10, $20 billion companies, and they can be really good businesses. And I think that's why a lot of investors who have moved, get more yield, find the vertical SaaS plays, because industries are also transforming. I mean, whether it's construction or banking or government or insurance, there's a lot of really exciting companies being built in all sorts of crazy places,

Starting point is 00:26:45 certificate for-profit education and car dealership software. And I could name tons that I'm even friends with or invested in. And it's kind of exciting. And the main theory is trade off that market size to go really deep on the problems of a smaller group of buyers. So what have you learned about effectively building for the right customers early on? Because I would imagine, you mentioned a camera or the number, but tens of thousands of state and local governments. How do you decide who to build for first? Because I imagine that picking your customers in large part determines the features that your product carries and therefore it's value to subsequent customers. Well, if we had you involved, Patrick, we would have saved about five years and we'd be six times the size. Basically,

Starting point is 00:27:29 made every mistake in the book. I studied government for 15 plus years before we started this business, but you don't actually go to college or law school or your master's degree. and focus on the local town. And the fact of the matter is, I mean, I had so many wrongheaded theories when we started this. I thought, you know what? They all say they're different. They're all snowflakes, but they're really not.

Starting point is 00:27:49 And we can run things like this and build it this way. And it's nope, that township with the green and the guy in the floppy hat doing the town crier thing over in like Massachusetts really is quite different than the town in Arizona. Their needs are different. Their accounting is different. Their workflows are different. Their citizens are different.

Starting point is 00:28:07 Their wants are different. So we've made a lot of mistakes. This is not a monolith. Even state and local government is probably a collection of subverticles. We've gone through a big exercise, I'd say, in the past year, to focus in on that product market fit and then focus within your product market fit on your ideal customer profile and selling to people who have high indicia of buying propensity for your stuff, growing, getting really good at that.

Starting point is 00:28:33 This may be an overly simple question, but I'm curious. I'll ask it anyway, which is when you're first building the product, what are you literally doing? Are you just trying to take stock of existing workflows and stick them into software systems? Is that basically it, just replacing previously manual workflows with software and then training the people to do it better? I would say that's a fabulous place to start. I would say I probably wish we started that way. We actually developed quite a different product strategy. We figured there's two ways to build this business. You could raise 50 million bucks, hire, say 50 engineers and lock yourself in a room for five years. These systems are really big, an ERP system for government.

Starting point is 00:29:12 I mean, thousands of screens of software. We thought that's really risky. You're going to lock yourself in a room for five years, try to come out, beg a couple of customers for a year or two to work with you, and then what if you missed the mark? What if you couldn't raise again? So we developed a different product strategy. Our first product was transparency, as we called it, connecting these systems to the web. Even just eight years ago was PDF printed budget books and that kind of thing.

Starting point is 00:29:37 and we put all that online. You could go through every dollar. And we became the leader fairly quickly in that. And then our next product was kind of internal reporting. Same cloud-based reporting started to compete a little bit with Tableau and Power BI and stuff like that, horizontal players. And then we went right into the back office systems. We built up budgeting and planning systems.

Starting point is 00:29:57 And then we moved into the core accounting and financial system and then moved into the permitting licensing code enforcement and all that citizen services stuff. We're expanding that way. And I guess if it works, we'll look smart and it's starting to work, so it's getting really fun. But a lot of these businesses are a long gestation period. And it's really key to get close to the customers and work with them. And the more you can rip and replace, I'd say the more success you're going to have. What have you learned about doing this in a highly regulated space? Probably a lot more rules and regulations than if I went to attack, I don't know, dentists or nail salons or something. Actually, Dentis might be regulated too, but it's not the end of the world. And actually, as you pointed out, there can be some very nice barriers to entry once you really get up and running and establish yourself, including as a market leader. I'd say it's 20 percentage points harder than enterprise sales.

Starting point is 00:30:50 A lot of your listeners, maybe enterprise software investors or enterprise service investors, selling the enterprise is complicated. You've got to find buyers and champions and coaches and you got to navigate it. You got to work all that. approvals and all that. Government's about 20% harder. You've got to typically take it to the board, as I said, and that's Tuesday night meeting. One of the things that's interesting on that is the more boring you are, it doesn't matter how expensive you are. It's the more boring you are, the easier it is to pass. So it's like visions of Montereil, Montereil, Montereil. That is like not easy unless people get whipped up into like a frenzy, where if it's like, hey, we're selling accounting and

Starting point is 00:31:28 permitting software, a jem, 47. Everyone's like approved. where it's like transparency, you can do great things for your community. They're like, I don't know. I wanted a bike lane. So there's the board. And then there's procurement. We have set up, in my own opinion, you know, I don't think I'm attacking anyone here. It's just almost like legalized corruption.

Starting point is 00:31:46 It benefits incumbents. There's all these games. You've got to be listed on this procurement vehicle. You've got to do it this way. And it takes time. It takes money. Startups have a big disadvantage. So when you get on those things, it's easier to cut through the procurement red tape.

Starting point is 00:32:02 It's the way so much business has done in state and local government, and we've essentially incentivized that as a collection of policies. But those are the two things, the board and the procurement practices that make it harder. It seems like there's just, again, thinking about this, like a really hard enterprise to crack, that you have to become a very good salesperson. You've said to me before that you may be gone from being not so good to mediocre at relationships and sales. What are the lessons that have allowed you to catapult to mediocre? I like to sell. I don't think selling is a bad word. I think it makes the world go around. And it's just critical to building a software company or really any technology or startup company. A lot of people

Starting point is 00:32:40 think of sales as the kind of like glad handing, cocktail partying, kind of real estate agent. And look, that can be a little, if you can build relationship, if you can laugh, you can have some fun and people like you, that's helpful. That is not the bulk of an enterprise sale. Enterprise selling is about process. It's about qualification. It's about being smart. Is what they're telling you true? Is the person you're talking to have authority? Do they have money?

Starting point is 00:33:06 Who do they need to go to? How do these organizations work? And so it takes on this almost intellectual element. And then to really do it right, you've got to scale it out across a team of salespeople. And to do a good sale, it's not just salespeople. You might need sales engineers. Those are the folks who would demonstrate the software. I can't barely demonstrate our own software any.

Starting point is 00:33:27 Thousands of screens of software. deep accounting or other business process expertise. So you've got to bring on subject matter experts. And then you've got marketing and collateral. And then you've got scoping. And then you've got procurement. It's like this huge process to do this effectively. And these enterprises are used to buying that way. So if you just rock up in a good looking jacket, you talk a big game, the whole enterprise is designed not to buy from you. When I talk about selling and enterprise selling, it's much more about how we build a machine to distribute software as opposed to how we shoot a bunch of finger guns and slap people on the back. Are there any secrets to doing that

Starting point is 00:34:05 well, building that machine that you've gleaned either from successes or failures as the scope has gotten bigger over the years? So if you were to go set up running the enterprise sales division at some huge SaaS company, like what would be the things that you would deploy based on what you've learned about building that machine? The chances are they probably wouldn't have gotten to be huge if they weren't really good at this. A great product is the name of the game. There's a lot of examples where great products have lost to great sales machines and you want both of them. I have more advice for, I'd say, the zero to 100 million group of kind of innovators, rather this and so on. They're very mature. One of the signs of their maturity is predictability. That's one of

Starting point is 00:34:44 the things you're trying to do. A public markets investor wants to say, look, if I put a dollar in this machine, how much am I getting out and when? I mean, that's what people want to know. that machine, my brother's an investor, a lot of people don't want to go really deep in the machine and the sausage. It's kind of gross. It's like, oh, my God, everyone's on a quota and it's just brutal and you're making calls all day. It's like, I'd prefer to put the money in there and see if it comes out. Salesforce could probably predict four quarters from now within a penny what it's going to produce. And that's a very highly developed sales machine. A lot of companies that are growing through the stages, A and the B and C and D have to build this out and they have to do it by hook and by crook.

Starting point is 00:35:21 A few things. Rip and replace is hard to create a new category. Wow, there's this new technology. We don't budget for it. We've never heard of it. You've got to market now. You've got to educate them. You've got to help them go find money. That can be difficult. So rip and replace is a nice place to be for both the entrepreneur and the investor. Two is high prices. I sometimes say, do you want to build a big company, medium company or a small company? And most entrepreneurs like, I want to build a big company. It correlates with high prices versus medium prices versus low prices. It's not always true. You can have a distribution model where you distribute low-priced software, think kind of Shopify or Figma or something. Boy, you better distribute that far and wide and it better work. We talk about the SaaS death zone

Starting point is 00:36:02 sometimes, say 10 to 25 or even 50,000 can be kind of a death zone if that's your annual sale price because it's very expensive to distribute this stuff. The organizations are designed to basically want lots of people and expenses to sell to them, to educate them, to now, navigate them to hold them in your hand and kind of flow down the river. So high sales prices are important. They're also, they help the buyer take you seriously. Hey, we're a real player. And this is serious stuff and we're a premium vendor. If you're looking for cheap stuff, I can recommend things. I can tell you to go look at vendors. I don't personally recommend it. Three, I would say you've got to build the functions out and you've got to map it to the buyer. Very few buyers have the authority to get

Starting point is 00:36:46 this done. So you've got to get a technical win. You've got to get what we call a political win. maybe with the board or certainly with the chief executive. And you've got to get the commercial win. It's got to map up to competitors and be worth it on the features and value. I mean, there's whole books and schools on this and I'm still a student. That's for sure. Can you say more about those three levels and sort of how they happen? So a technical, political, commercial, are those three concurrent processes that are running

Starting point is 00:37:11 side by side? What have you learned about getting those three kinds of wins? That sounds interesting. So let's say you're the city manager. This goes for private sector selling as well. we'll call you the chief executive. And let's say you're buying a financial system. So your CFO would clearly need to be in that.

Starting point is 00:37:26 It'd be absurd for you to buy that and not consult with your CFO. In fact, you'd probably say to the CFO, you lead this. Similarly, it'd be absurd for the CFO to buy it without consulting with the staff. All of a sudden, you can start to see the complexity here. The staff accountant who spends all day entering cash receipts into the system, very different than the CFO, very different than the CEO. And now you've got to be selling. all of them. So the user level wants to show me the features, what's this going to do to my job. It's

Starting point is 00:37:55 not going to threaten my job, is it? And then the CFO wants a mix of like safety, security. Is this the market leader? It's the right amount of spend. Is it going to live my vision? The CEO, I don't want risk. I want reasonable price. And he's the one who's got to sit in front of the board probably and say, this is what we need to do. And we need to spend X hundreds of thousands or millions of dollars of taxpayer money on this. And the board's going to ask questions. And so you've got a political win around the narrative, the board, the CEO. You've got a commercial win that's required to get everyone to say, all right, fine, spend $300,000 on this. Let's move on to the next topic. And then you've got a technical win where like all the staff accountants and others who

Starting point is 00:38:36 touch this thing and maybe IT gets involved, right? And that's like, oh, this keeps getting more complicated. So you typically almost want to map up sellers, if you will. I'll play different roles, other folks on our team, and you can talk politics or you can talk commercials or you can talk technical. And the technical could be a five-hour demonstration of the software using your data, showing all your business processes. If you don't have all of those, you could get to the 11th hour, you think you have a deal, you forecasted it. We're not public yet, but to Wall Street, to your investors, whatever, that thing's not real. It's not real. And if you can't forecast, it's pretty tough to build a business and make the right investments to have the business grow.

Starting point is 00:39:15 And it's certainly demoralizing. You can certainly see why incredible enterprise sales forces are such a competitive advantage. A machine like this that's well built, especially if you're talking about thousands of customers who are paying huge numbers, you have to have all these wins going on simultaneously. I mean, you really see why it's no joke to build one of these things. And the Franks Lutman's of the world who run Snowflake are so revered for the systems that they put in place. What have you learned concurrent with that sales process and I guess ongoing support of these

Starting point is 00:39:44 customers and the continued iteration of the product alongside that. So you joked thousands of screens of software. You don't even know how to demo it anymore. As the CEO of the business, how do you keep enough intelligence about what's going on but push as much down as possible so that you're not a bottleneck? So there's a few questions in there and they're all really key to doing this right. One is I'm in the market every day trying to absorb information. I know not just the names of the leaders of my competitors, but like, I know what colleges they went to. And like, there's the old joke like, oh, rep from Oracle seems to be army crawling in the bushes over there. It's real. It's hand-to-hand combat in some of these. So you got to know the competitors. You got to know

Starting point is 00:40:27 the market. You got to know how they're selling. Even the reps often should know who they're competing against. It's very competitive. It's why it's often like top athletes get into it and that kind of thing. It can be a lot of fun, kind of thrilling, the thrill of the chase and the win and team sport and all that kind of stuff. We brought in a lot of really good people and I continue to try to build this. I'd say the next stage is how you build this so it can scale. And that means training materials and the right management structures. Everyone needs management.

Starting point is 00:40:56 It's something that I've learned painfully. It's just every four to eight people needs a manager. People need to know they're cared for. They've got career paths. They need more comp. They're taking care of. And so you've got to get the management structures. And then there's tons and tons of training.

Starting point is 00:41:10 and the training is not easy. I mean, you've got to have tear downs on your competitors, strengths, weaknesses, and the thing is it's constantly evolving. So there's no like, oh, we achieved market leadership. Let's chill. I mean, a lot of businesses do that. A lot of private equity-owned businesses do that and you can milk the cash. But if you're into a growth company, there's no end of features.

Starting point is 00:41:29 And if you're certainly selling to a big complicated enterprise like a government, I mean, we could build for 10 years. So it's more about dialing in the investment on R&D and following the metrics about sales, to know when you should hire more reps, what's your magic number, how is it trending, and kind of how you scale this. And that's the stage that we're at never-ending learning game on the competition, on your own weaknesses, and then you're building software rapidly. So how do you how do you get that not only out to the customer base or to the prospects, but how do you even

Starting point is 00:41:59 train your people? As you start to get hundreds of people, just telling them what you have is a challenge. So there's all these different functions from product marketing to product management, of course, that form increasingly key parts to making this all work. And if you're broken in one area, it's kind of the goal, the theory of constraints, it holds back the whole business. What else you learned about how government, state and local governments operate that we haven't talked about yet, you think would be interesting or relevant, I guess, to anyone, because everyone's part of one of these things.

Starting point is 00:42:28 Most of our governments are not run by idiots. I know we like to think that trust in government, as you alluded to, is very low. It's the highest of the lows in local government. And believe it or not, there's a lot of competent lawyers, accountants, professional managers who are running our nation's departments of public works and serving as the assistant city administrator and in all these key roles. I do think, and I do lament a little bit, I got a master's degree in public administration. And the school was founded in an era when the phrase good enough for government. You know this phrase. It's become ajorative, right? You laugh at your colleagues work, say, that's good enough for government. That actually came from an era. when the best people went into government. Our post offices were gilded and made of marble. And a vendor had to be so good as to, quote, be good enough for government. It is kind of sad, I'd say, in the last couple of generations, the disrepair many of our governments have fallen into.

Starting point is 00:43:26 And there's a lot of reasons. But we can't just pass the buck. I mean, we're all members of communities and certainly society at large. This is what we get. We get who we are. We get what we do. And that's what's kind of shocking to a lot of people. It's like, wait, this is my issue?

Starting point is 00:43:41 Yeah, it is. They're just bored. Anybody can run for these things. So if you really care, you can step up. And if you don't care, you don't have a great claim to just saying, oh, yeah, everyone sucks. You can lament the state of society or culture, but that's certainly not going to affect anything.

Starting point is 00:43:56 So I think that's a very interesting lens through which to look. And most people do not spend the time looking through that lens. If you could have a dashboard in your startup screen in the morning and it can only have three metrics on it that you could use to assess the health of OpenGov and your business. What three metrics would you put on that dashboard? We use Exeter cumulative ARR. That's critical. I'll mention a couple that are maybe less critical. We're on a big train at OpenGov right now building our professional services business. Building an enterprise SaaS company, I'm now of the belief that it's really two businesses.

Starting point is 00:44:29 It's a software development and distribution business building and distributing cloud software, but you got to screw it in. So you build the product. And you got to screw it in. Implementing it, you could charge by the hour, you can charge by the project. It smells like consulting, but installing or deploying or implementing whatever you want to call it is its own business with its own motion. And what we found, as we're driving towards cash flow positive, is that not losing money on your pro serve. It's common that a lot of these businesses say, everything's about ARR. And I disagree.

Starting point is 00:45:01 Chambers came in onto our board, a former chairman CEO of Cisco, who you know, he said, you know, what's up with the services business. And Andreessen said the same thing. We were operating under the, oh, we'll distribute it, we'll make it up. The ARR's worth whatever, five, 10, 12. The services are worth one, two. And the reality is more services equals more software. More services equals happy customers. Charging more for the services equals faster to profitability. We're following our professional services gross margin very closely. And I'd say a third one is that magic number. Essentially, how much you spend on sales and marketing and how much do you get back in the form of revenue? really focusing on efficiency. COVID has been a minor blessing in this regard. Every government now

Starting point is 00:45:43 uses a video conference. We were traveling around spending so much money on planes, trains, and automobiles, and not just the money. How many people are sleeping in cheap hotels and missing flights? And that's lost selling time, let alone the morale impact of missing family or children and so on. And so our productivity has just spiked in the last six months. going to highlight that middle point is so interesting. I won't mention who said this to me, but just because I haven't asked him if I can, but a very well-known enterprise software investor said to me once, one of the hardest things to convince his young founders to do is charge for professional services from day one. Oh, well, then the whole world gets it and I was the only one who didn't.

Starting point is 00:46:24 That's great. I think he said it was so hard because it so goes against the instinct. I felt it too of wanting to get those first big wins with that huge software contract that's recurring revenue. And I think his point was just like, look, people need to respect. This is a lot of work and work costs money. If you get that muscle built early, you'll be way ahead of peers. Even though it's not high margin business, even though it feels unnatural, it's a great muscle to develop early on. It's charged for services.

Starting point is 00:46:52 I love it. Well, it sounds like you get it, but boy, I wish I'd gotten it earlier. I actually think most venture investors don't get it. I don't think they get it because a lot of their companies, they just, oh, it's a multiple of ARR. And so I think they don't get it in large. do. Obviously, I got beaten up a little bit about it. By the way, it doesn't have to be low margin. You can dial it in. I mean, Chambers is like, man, we got 60% margins at Cisco. So you can dial that

Starting point is 00:47:16 in once you get good at it. But boy, it takes a lot of muscle, a lot of things to be built, processes, collateral. But I find that buyers want it. And I get that. If I was an enterprise buyer and you rock up to me and say, I got this newfangled software and you don't have any plan to install it, you don't have your racing matrices and your Gant charts and your five-person team and all the bios and all the scopes and so on. I'm like, you're a joke. I don't think this is going to work. We all hear about these massive tech disasters and governments. And there's a lot of them. I mean, it's actually why we started OpenGov. There's a major disaster going on in California, replacing their cobal-based financial system. It was originally projected to be done in 2016-17 at $100 million. You know what it costs today?

Starting point is 00:48:02 you ready for this? A billion bucks and going strong. It's a whole agency set up for this thing. And I think that's because the consultancies have gotten so good at professional services. And the big incumbents are so good. I call it the change order to hell process. You just change order to forever. We're very mission driven at OpenGov. We want to deliver value for our customers. But we've got to learn from the kind of nefarious business tactics and make sure we stay aligned with our values and our ethics. but building a professional services business has really vaulted our company forward. And I see a lot of young companies that aren't doing it yet. As you look back in the eight years spent so far building OpenGov,

Starting point is 00:48:40 I don't necessarily just mean in the business. But in that eight year period, what period or episode has been hardest for you personally and what did you do about it? It's all about people. I'm actually scared a little bit to talk about it because I feel like I'm walking on eggshells every day, just how hard it is to build culture and to build organizations that work well together with both really motivated and hardworking people as well as just really nice, fun people. But three, four years ago, I had all manner of HR problems. I got some really helpful

Starting point is 00:49:08 advice. My board said, you got to fix this, Zach. You can do it. And you got to obviously hire the right people. Everyone talks about that. But how you exit people is really key. There's no way to build a business and go through the phases, one, five, 10, 40 million in recurring revenue and not need new talent. new management strength and how you exit people is really key. Don't give them that terrible performance review on the way out. Celebrate them. If you know somebody's got to be changed, you've got to treat people with dignity, you've got to treat them with respect. You've got to understand that people are people. They have needs. And we brought in an excellent head of recruiting, excellent head of HR and people. And we're investing really hard. Geez, I was in the doldrum's

Starting point is 00:49:52 CEO rating on Glass Door and the company's rating. And it's really soared through spending time on this, spending energy on it, and bringing in real managers, people who like it, people who love people and management, who know how to do it, who manage large groups of people. I was so stressed running around like a headless chicken that I probably made every mistake in the book. And those are some battle scars that I remember like there yesterday. What specifically, not to pour salt on a wound here, but what specifically about, say, negative reviews on glass door or something? Do you think we're there for the right reasons?

Starting point is 00:50:25 Like, what were you doing wrong that anonymous reviewers were right about that you've since fixed? When I was getting hammered, I was like, I'm killing myself to make this work. I'm trying hard. I know we care about our values. So why is this happening? And I used to think to myself, man, this is like some type of mob thing. I mean, what a business glass door. Like, you get jammed with these ratings and then building a business out of that.

Starting point is 00:50:47 I was like, isn't that like the modern version of the mob? And I used to criticize. And I found I said, you know, I got to go deep. I got to introspect. where there's smoke, there's often fire. What am I doing wrong? What are we doing wrong? I said, why don't I try to love this public rating system, whether it's glass store or culture pulse surveys that we do and getting that feedback and that tough feedback. Why don't I embrace it? It's a gift. Feedback teaches you. And the problem's probably with me and not with that salesperson who left or that office

Starting point is 00:51:19 manager that didn't work out. And when I started to do that, things started to turn around. around, obviously bringing in the right talent and then working hard on the alignment is really key. But I found embracing it and seeking that feedback is probably the big difference maker. And there's tons of tactical plays that need to be run, including I still get deep. And I love the business and I love going deep. But the less I kind of get up in everybody's business and the more I'm like inspiring and a figurehead. It seems obvious. But that's been really helpful. People need room to breathe. They need to be autonomous. They need to have some creative spirit so they can execute. The last thing I'll note that we've done a few times, which is

Starting point is 00:52:00 literally changed the trajectory of the business. Get every manager and functional leader in a room when the strategy is clear. If you're making a strategic turn or you're repositioning the company or you're moving to the next phase, get them in, get everyone signed up in a loving way. You might even need to say, if this isn't the right strategy for you, we'll educate you, we'll train you. If it's still not the right strategy. We can help you move on. But this is the strategy and we've all got to be aligned. That's the old disagree and commit and then roll it through the company. And we've done a couple of those and the company just vaults forward when we do it. So a lot of these lessons that you shared with us are kind of big company lessons, right? Big complex machines for selling,

Starting point is 00:52:40 pushing through kind of different levels of ARR. It's like having kids, like bigger kids, bigger problems. It's like bigger company, bigger problems, it sounds like. But really embracing an acting on feedback, good or bad, is so interesting. I want to rewind to the earliest days and any advice that you would leave entrepreneurs with out there, especially in vertical SaaS, which is space that you've been spending your career and know very well. What advice would you give the new entrepreneur that wants to build a vertical SaaS business successfully? So I've watched some people succeed marvelously. And I try to learn from them, even if they started after me or they're not as big as me, but they might be worth three times as much. They're just zooming up. It's really all

Starting point is 00:53:24 about the product. Does the product work? In enterprise software, a product that works, I mean, that's worth a lot. Enterprise is enterprise. You've got to have the interfaces and the hooks and the APIs and the access controls and the security. And it's like all this stuff. It's unending. It's why the incumbents have such a moat. I would probably have invested less in sales and marketing early and more in product to try to get more fulsome, closer to customers, know it works, tear down the competition, know that I can rip and replace and then pour the gas on. But being really good on product, really having a vision and a strategy that's right and not just vague or kind of naive courage, you got to have a lot of that.

Starting point is 00:54:05 And that's my second point. It's basically as hard as Ben Horowitz says it is in the hard thing about hard things. Have you read that book? Yeah, of course. It's kind of a little Bible for early stage entrepreneurs where it's just like, why is this so hard? I remember reading it like cradling. He understands me. But Elon Musk said, you know, when you're chewing glass and you like the taste of your own blood.

Starting point is 00:54:27 It's not macho that I'm friends with and advising some outstanding women entrepreneurs and everybody's in pain at these early stages, unless you love it. Some people who love it. They must be masochistic, sociopathic, more power to them, little jealous. I have actually, as we've gotten tighter product market fit, most people, I say a lot of entrepreneurs are like, I miss the old days with the garage, with the buddies and the trick duck and tricycle zooming around having fun. And I'm like, I don't miss it. It was so hard. I felt like we're going to fail like any second or every day you're going to hit the wall.

Starting point is 00:55:03 And as we've grown, if we brought in talent, amazing people leading the business, my life's improved, my optimism's improved. It's getting more. My fun distress ratio is going down. So keeping the faith, having courage. I've seen a lot of companies look like they're going to die and then they work. It's just amazing how it works. So I'd say that persistence is often rewarded. We've also often seen a lot of entrepreneurs pivot, pivot, pivot, pivot, pivot, and then they hit it.

Starting point is 00:55:29 So it's tough to overgeneralize. The third thing I'd note is you've got to build momentum. These businesses and frankly, almost any organization is about momentum. Why? Because we're people. people live for momentum, inspiration, encouragement, what's the next thing? Our minds naturally gravitate forward. So I started doing some things early.

Starting point is 00:55:49 We close the sale. Bam, we hit the gong, right? We closed the deployment. We started ringing a cowbell. We ship software. We want to exalt the engineers and celebrate. We've got to celebrate the small wins. It's a bit like, I don't know if I should share this, but like throwing a party in high school when your dad's out of town or something.

Starting point is 00:56:06 If you call up the people you want to come to the party and you're like, So you want to come to my party and they're like, well, who's coming? And you're like, well, so and so maybe, but the quarterback might be there. And like prom queen may show up, but she says her mom might not. Nobody's coming to your party. That's the lamest party. It's not going to work. If you call up everyone, you're like, oh, my, my biggest party ever Saturday.

Starting point is 00:56:26 Hey, I got to go. I'm so busy. It's going to be huge. Everybody's going to be there by. You're defeating the holdout problem. And these businesses are built brick by brick. You can't recruit the top sales guy until you get the revenue. But you can't get the revenue until you get the top sales guy.

Starting point is 00:56:38 You can't get the top investor until you got the exact team or until you got the revenue. It's like everything's dependent. How do you break that? You break it through inspiration, selling, momentum and kind of attacking that holdout problem. And it's something I think about a lot because every stage of this business has that holdout problem. And you typically can't recruit the people that you want because if you were then, you wouldn't work for you. And so you've got to get to the next level and bootstrap each step of the way. Sounds like you work with other founders as well. What other creative strategies have you seen for sort of engineering momentum? Because I could not agree more that momentum is the lifeblood of getting people to work harder and be happier and sort of like create something from nothing. It really is a magical thing. Have you seen other leaders do it differently than the gong and the cowbell and your way of doing it? So there was people way better than me. It takes a lot of, it's a technical term, I think sometimes called kohones. You have to have the steel courage to lean out way over your skis. And you've also seen people fall flat on their face. I mean, I don't want to go there with their nose. It was obviously and wildly unethical.

Starting point is 00:57:48 But if you're an entrepreneur, you can start to see how it happens when you're leaning that far out over your skis and it almost turns into a Ponzi scheme to try to get the momentum going. And the thing is, it sometimes works. And people actually do build products and companies that work. And so it's a bit about that risk tolerance, even among what is arguably one of the riskiest professions, not physically, of course, but ego and all the drama that goes with it. So it's hype. Can you deliver? And you've got, I don't know, Magic Leap was maybe the last one. And the thing is, I don't even bet against people anymore. They may be down and out and they may come back. I've seen it. I've seen all the craziness and so of you. And so it's really a Hollywood type environment where it's like who's going to vault to the A list next.

Starting point is 00:58:29 And you don't want to bet on people. You don't want to be negative. You want to do what's best for your company, your shareholders, your people, your customers. But, momentum can breed into hype and it's very important to find the line that you're willing to lean out on. I love the topic. And that's not in any of the business classes I don't think is building hype and momentum in a business, but God is important in almost every success case that I've seen. Like you said, it's about balance. It's not getting too far in front of your skis, but being willing to lean a little bit and really push yourself and your team. I don't think I've seen anybody go through the kind of journey that you've been on from a brand new business to now

Starting point is 00:59:04 a fairly large business, not change a lot personally. And sometimes that's for the better, sometimes it's for the worse. It can be a really stressful job. John Chambers, who you introduced me to, said, you know, could be very lonely at the top. No one really gets that unless they try it. What have you learned about, I guess on a more personal level, about improvement, adaptation, change, how you conduct yourself? I'm sure this is something that you've thought about because you've had to. What have you learned there? I think about it all the time. I think interpersonal relationships. and I mean personal relationships, I've learned tremendously from failing and from making mistakes and getting feedback from my colleagues at work. I don't know if that's cliche or innovative or what,

Starting point is 00:59:45 but a company for better or worse, particularly in the early stages, is often a reflection of the leader. Many organizations are reflections of the leader. And I mean all the problems. And as I saw problems and I still see problems, I have to look internally. What am I doing to contribute to those? How did those happen? I grew up in a difficult home environment. My mother was an alcoholic. I guess a lot of entrepreneurs maybe have some adversity in their background. So many Americans do, but it leads to maybe a chip on the shoulder. And I want to prove myself or I want to compete or I want to do something great. And it probably comes from a deep-seeded insufficiency at the maybe self-esteem level. That drive can get you a lot of places, but it probably doesn't actually get you where

Starting point is 01:00:26 you want to go. And you've got to temper it with all the learning, all the self-development, I mean, coaching, reading, making your colleagues feel safe to tell you you're stinking or you're sucking. I didn't like the way you did that or what you said. I have found in my personal relationships that it's had a huge impact over the years. The number one job of a leader or a manager is to confront issues. Sluutman said that in his piece amp it up. I would, would say it's conflict management. Andresen would say it's conflict management. What does that mean? I like to say to my staff and my team, work is basically one long series of awkward conversations. It is. And if you're not having awkward conversations, you're almost certainly not doing your job.

Starting point is 01:01:11 Or you live in a fairy tale business and please, I'd love to invest in it because it's going to be perfect. But everyone else on earth has to say, hey, what's going on? Such and such is late or why did we lose that sale? Or what's going on here? And you just basically have to have awkward conversation. all day. Well, what do you have to do in your family life or your personal life? You probably need to talk things out and resolve conflict. And you need to do it by listening, by reflecting and by kind of finding compromise and by quelling those kind of primal or innate emotions that well up and make you defensive or, as my girlfriend likes to say, turn me into a rattlesnake. And like, I got to put that away and put the big boy hat on, hear people out. And most of the time, they're saying something

Starting point is 01:01:53 really important. I have no good transition for this. but I know it's something that we're both kind of strangely interested in, which is the topic of death. Again, I have no way to bring this up other than I'm really interested in it, and I think you are too. Can you say why that's interesting to you and why a study of death is ultimately a study of life and kind of what you've learned from that investigation? My mother was an important figure in my life. She was a very troubled person. She passed away four years ago, and it was really brutal. She was very ill.

Starting point is 01:02:22 She was an addict. I kind of took my first foray into some of the loose. literature, the Tibetan book of living and dying, and even the autobiography of a yogi and as well as relationship books. And one of the interesting things, at least the Tibetans, I think, say is you've got to meditate on death. You got to think about death if you want to live. And my mother always instilled a sense of adventure and curiosity in me. And it's the two things that I'd say drive me at OpenGov. In my leadership journey, in the business journey, I love the adventure and I love the learning.

Starting point is 01:02:57 Every quarter is like a new year. I call them like startup years, as opposed to dog years. It's constant learning, constant challenge, constant adventure. I think it's why I'm doing the same thing eight years on.

Starting point is 01:03:08 I hadn't done anything for more than a couple of years before this. And I remember as a kid, boarding planes and thinking all these people who are afraid of flying. And I used to actually weirdly meditate on like, what if this plane went down? Could I take deep breaths and like enjoy that journey? And it's a super,

Starting point is 01:03:25 weird thing. I don't know. It was probably eight years old and I took my first flight. I think it maybe helps you get that extra juice out of each day or pursue challenges with zeal or take on things you're scared of. But I'm just at the very beginning. And the past few years have been difficult. It's been my, I guess, adult entrance into death. I lost my mother, my uncle, my grandfather, and a couple friends this year. And they say you don't really achieve adulthood until you lose a parent. We're in a time, a very interesting and complicated time for our country. A lot people are losing a lot of people. I don't know, for me, it certainly opened my eyes. We lost an employee at OpenGov recently. It's really painful and it's really hard and it's a time to kind of

Starting point is 01:04:06 bring people together and reflect on what we're doing and why it's important and getting meaning out of work and life. Sounds like a grim topic, but I think for those that study it carefully, ultimately it's the most positive of topics in a weird way. Maybe we'll transition and close on what you think people can get from spending some times in the mountains. There's a few different different theories on this. I love mountaineering literature. I've been climbing mountains since I was eight years old. My father introduced me to the mountains in the Adirondack Mountains in upstate New York, and now I've had a good fortune to go around the world on many different mountains. There's solace and solitude and nature. There's tremendous challenge. You know, everyone talks about flow.

Starting point is 01:04:45 Mountaineering is one foot in front of the other stomping up a hill. Your mind clears. You can achieve a state of flow. You can achieve a state of flow on the golf course or playing the piano, but this is an area where I think a lot of people achieve that. Some of the literature says you get closer to God. You get up into the altitude, you get up into the clouds, you get into the cold, and you feel not only a sense of accomplishment, but a sense of awe and wonder. I don't want to take it to the religious level, but there's something kind of bigger than you, and that's really powerful. You, of course, get to see different cultures. And if you're climbing with others, you get the camaraderie. And it's really incredible camarader because it's often extremely uncomfortable.

Starting point is 01:05:26 And the last point I'd say, which is probably my favorite, it makes you appreciate what you've got. Warm bath or a hot meal. Good night's sleep. These are things you don't get sleeping at 20,000 feet or being in the freezing cold temperatures and grinding it out to achieve a summit. And there's, of course, many parallels with building a company or really even building a family or a relationship or anything else you do in life. I was going to say it's mountains all the way down, I think for sure. Is there a single moment in your

Starting point is 01:05:54 mountaineering experience that stands out as the most magical looking back on it all? There's a lot. Climbing Denali for me, I remember being eight years old and my camp counselor had just gotten back from Denali in Alaska. And I said, I want to do that. I'm going to do that. When I was living in Mexico, I trained on the volcanoes in Mexico. And I literally spent the last few pennies I had at the time to go to Alaska and get into the summit. It was weirdly emotional for me and people climb it every year and it's a very special place being up in Alaska near the top of the world and seeing the Alaska range and very cold temperatures. And it's just the culmination of a lot of work. And so for me, that was a very special time. And I thought about my dad who taught me how to

Starting point is 01:06:38 go on the mountains and felt a deep sense of gratitude, both for him and the world. Well, Zach, this has been so much fun. It's very unique. obviously space that you're building in, but also a lot of unique lessons that even though I've had tons of these conversations, a lot of things stand out. Go ahead. One final closing thought that I know you care a lot about and we didn't talk about earlier is the role of capital efficiency in all of this. We talk about momentum and VC and the speed of tech and all this stuff and there's capital plenty, but one thing that doesn't get talked about as much as capital efficiency, maybe just say a few words there. Yeah, I have tremendous admiral. I've done it differently

Starting point is 01:07:11 in part through just mistakes as well as the coaching and the ecosystem I was in. We raised a bunch of money, hired great people. We spent a lot of that money and we're charging hard. We did talk about momentum. I would say the flip side is capital efficiency. And it's probably the entrepreneurs I have the most admiration for are the ones who they've actually pinched every penny. And they've kept it really tight. And I've developed a theory in just the past couple of years as we're driving towards cash flow positive that actually

Starting point is 01:07:41 spending less money can generate more revenue. And it's almost counterintuitive for so many. But you tighten up. You understand what works. The machine works better. I learned a lot from the founder collective team. Very good seed investors. They're in OpenGov. And they started ragging on me a little bit. I started taking their lessons and their blog posts to heart. And I started looking at some folks in the space that I'm in and other entrepreneurs. And I realized, wow, don't pour the fuel on the fire until you've got a really good kindling going. Don't shift gears until you're in the 5 to 7,000 RPM's. You're just burning cash. And I've also seen the noise come down. Every move we've made to actually tighten up or to remove unnecessary resources or to stop doing unprofitable things has calmed the company down.

Starting point is 01:08:32 I sleep better. Everyone else sleeps better. A thousand last email chains, 20 less meetings. And so a lot of entrepreneurs who come to me and they exalt the, you know, let's go to Sand Hill Road and let's do this. I encourage them to think seriously. I said, you know, Michael Bloomberg didn't make $50 billion by raising a bunch of venture capital. And a lot of entrepreneurs that we admire didn't. And so I think long and hard before going and raising the next round just because it sounds cool. And certainly the measure of a company is not how much money it's raised. It's how much it returns probably to its investors and its shareholders.

Starting point is 01:09:04 It's the value it gives to society. and it might even be that ratio between capital raised and valuation. Sadly, we have to turn to my traditional closing question for everybody after an awesome couple hours together. So thanks so much for your time. The last question I ask everybody is for the kindest thing that anyone's ever done for them. Maybe a little ironic, but it's the tough love I've gotten from my business mentors, my board. It's the chance to fail. It's the chance to be told you suck and not lose your job.

Starting point is 01:09:34 It's a huge amount of pain. And I do wish, boy, I wish somebody had saved me from some of it. But going through some of those gauntlets, I don't yet have children, but you want to raise kids with a little freedom, little autonomy to fall down and experience that without permanent injury or really getting hurt. And I know I've received a lot of that. That critical feedback I get from my team, from my board. I don't know if that answers your question because it's not a single individual. But it's really made me a believer in critical feedback. Well, I can't wait to listen to this one again and pull the lessons out and hopefully apply

Starting point is 01:10:10 some of them myself. Thank you so much for your time. Thank you so much, Patrick. This episode was brought to you by Microsoft for Startups. Microsoft for Startups is a global program dedicated to helping enterprise-ready B-to-B startups successfully scale their companies. In this five-part mini-series, we talked to Greylock partner Sam Motamity and Microsoft for Startemate about why companies should partner with Microsoft for startups.

Starting point is 01:10:34 In this week's episode, we flip the tables. And Jeff Ma, the Microsoft for startup lead, asks me about my experience building on the Microsoft stack in my own business. One of the things I wanted to ask you about as sort of a now flipping the tables and entrepreneur yourself, as you thought about what cloud platform to work on and ultimately chose Azure, what were the reasons why and how has that experience been for you so far? I guess the simple answer would be the ecosystem advantage. So everything from me knowing you, Jeff, prior to you. joining Microsoft and sort of the related network around both of us, our past experience at Oshonnessy asset management, building all of our infrastructure on Microsoft so that when we

Starting point is 01:11:15 moved our business to focus more on enterprise software, we were already using the vertical services from Microsoft and using Azure. It just made a lot more sense. Our lives were much easier using Azure, given everything else we did in that business, versus trying to build something entirely new on one of the other providers. So prior to us talking about this partnership, we had been using it already just because it made more sense for our business because we were already plugged into that ecosystem. The other thing I would add is that we've chosen to do the same in this media business, which I think ultimately will actually use cloud quite a lot as we think about building very fast, effective products, using storage, using compute. And what I would say

Starting point is 01:11:54 is my experience working with you and your team so far with a portfolio company that I won't mention the name of, but exactly in the spirit of what you're discussing, which is, yeah, we're strong technically, but we also bring this ecosystem advantage where we can plug you, if you're an enterprise software business, into a wide array of different companies that are already Microsoft customers. And I've been sort of amazed by how fast and efficiently that process has gone with the portfolio company that I'm an investor in. And so just seeing that in action, where it's both the infrastructure, but also the ecosystem that you're effectively selecting as a young company, I think that's an incredibly powerful combination.

Starting point is 01:12:35 And the roadmap that you laid out makes Microsoft and Azure interesting for those reasons. Yeah, I think one other thing that would be interesting to talk a little bit about is as someone that was in the Valley, starting companies in the early 2000s, and then there was like a probably like a 10-year gap for me and using Microsoft products. and so I've come back to them now and use them. And one thing that I think that was sort of the promise of Microsoft that didn't used to be the case, but I really feel like is now. And I'd love to hear your thoughts on it is this idea that this ecosystem is so strong

Starting point is 01:13:08 that you can basically do everything you want with Microsoft products all integrated across the board. So how much of that sort of comprehensiveness of Microsoft solutions and ecosystem is a factor for you? Maybe it's one of the nuances of what I would call the ecosystem advantage, which is, I mean, even something like Teams, which I know is a focus for Microsoft, the fact that it's so easy to just flip that on and make that our default solution for solving that problem, like is every single button and every single feature exactly right? Like, I don't know, who cares? But the fact is that it's just easy to integrate into our existing workflows. And our experience so far with Azure is the same,

Starting point is 01:13:50 which is everything just seems to go relatively seamlessly, given how we built stuff in the past. And we're the poster child of on-prem, old-world server and on-prem infrastructure type company that has aggressively migrated into the cloud using Azure. And I would say that's a huge part of it. Our default decision was, well, we already used the Microsoft stack for so much else. Why not just use Azure for building Canvas, which is our software? But what's interesting is that that's then bled into other choices like, so we're now using teams internally. So it just seems to be this kind of domino effect that if you are willing to invest in a single partner, they then make life very easy by solving a lot of jobs for you, not just one job. And that seems to be less the case with AWS for sure that obviously don't have a lot of the application layer. Obviously, Google does. But our legacy as an enterprise was in Microsoft. So that piece of it is a big part of our decision. To find more episodes or sign up for our weekly summary, visit investorfieldguide.com.

Starting point is 01:14:52 Thanks for listening to Founders Field Guide.

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