The a16z Show - a16z Podcast: Creating a Category, from Pricing to Positioning

Starting point is 00:00:00 The content here is for informational purposes only, should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi, everyone. Welcome to the A6 and Z podcast. I'm Sonal. Today we're talking all about category creation, which a lot of new startups selling new innovations, especially to big companies, have to do. Joining us to have this conversation, we have general partner Martine Casato, who helped create the category of software-defined networking through NICERA and then at VMware and also recently wrote a post on going to market when no market exists. We also have Michelle Feaster, CEO and co-finder of UserMind, which provides integration software to help companies connect their internal systems together so that customer experience is seamless. And before UserMind, Michelle was VP or products at Aptio, where she defined the category and the discipline of technology business management. So our discussion today covers everything from pricing to positioning to other product marketing and what category creation means for entrepreneurs to broader trends in how IT is changing. But we begin by defining what we mean by category creation and why it matters. Category creation is about creating a net new problem and a net new solution of that problem.

Starting point is 00:01:20 And the reason it's important is that if I go and I build a better monitoring tool, the price point of monitoring tools is already set. Whereas if I create a category, I can set the annual contract value. In the price point, I can set my own market size, and I can literally move money from one pot of gold to the other. That is so crazy counterintuitive to me, because I would never think that the whole point of creating a market is actually set the price point. I mean, I think most people don't have high enough aspirations. Like category creation means you created a new thing people can buy. Why do you want to do it? You want to set the price point.

Starting point is 00:01:49 That's exactly right. That's the simplest point. 100% right. And why is price point important? because basically there's no other single number that ties to the valuation the price point because basically that's ACV? Yes. And if I am in an existing market

Starting point is 00:02:01 the ACV is already set. Period. Playing somebody else's game. That is the purpose of categorization. So I've got this kind of super high level way of thinking about this thing, which is at least in the enterprise of you're an entrepreneur,

Starting point is 00:02:12 you kind of have two objectives. And they're actually pretty simple. They're just hard to do. And so the first one, if this is category creation, the first one is you have to create a concept in people's brain. Like whoever your constituency is, whatever, they wake up in the morning

Starting point is 00:02:22 and they think about millions of things. things, but they probably don't think about your thing. Now, if they think about your thing, you're probably not doing category creation because somebody else has already planted that idea in their head and they already have concepts about it. But if that concept doesn't exist, it's your job to plant it. So let's say you've come up with a new thing. So your first job is get someone to think about that. So now they wake up in the morning, they think about it. And then the second thing that you have to do is to set the value on top of that thing. To Michelle's point, in category creation, the playing field doesn't exist. So you first

Starting point is 00:02:49 have to create the playing field, but then you get to set the rules. And once you do that, that's what drives your business in like basically the industry. I mean, that's profound in a certain level, but I feel like it's also very obvious. Like, of course price point drives your business. What do you actually mean? Why does that specifically matter in the enterprise? Or is it unique to the enterprise? I don't think it's unique.

Starting point is 00:03:05 I mean, if you look at it, right, who would start a Kleenex company? Like, we call Kleenex Kleenex and the price of Kleenex is set. And so to me, the point of view is how do I get you to see the world differently? So you see a problem I want you to focus on. How do I make that problem really important to you? How do I make it compelling that you're going to solve that? And it's really hard to do that in a defined, like where Kleenex exists. So this, to me, is marketing and branding, just like in any other business, just like CPG.

Starting point is 00:03:29 We don't think about enterprise software like any other marketing and branding exercise. So to me, that's where the narrative starts. The narrative starts with framing a problem that may already be latent or they don't even think about and making it top of mind. And when you make people see a problem differently, you arbitrarily get to reset the value associated with solving that problem. Because you're describing the arc and the narrative. So Michelle, I actually have a lot of things in common, but one thing is we both had Ben Horwitz on our board. Yep. Right?

Starting point is 00:03:58 Good old Ben. Yeah, and he was the one that actually really impressed this upon me, which he told me once in a meeting. He said, you know, there's nothing that will impact the value of your company or the valuation of your company more than pricing. And I never understood how profound that was until actually having gone through and gotten this guy. Tell me more. So in direct enterprise sales, when you've got a salesperson, there's only so many deals that they can close in a year. Let's say it's five, let's say it's 10, whatever it is. like there's a natural law in how many they can close. So the pricing is going to directly impact

Starting point is 00:04:25 how much they bring in that year, right? Now, there's a market value for how much you pay a salesperson. So your margin is basically how much they're able to bring in minus how much you pay them. That's by far on your balancing sheet, the or a variety thing. Right, because basically enterprise products don't sell themselves. You have to have. That's right. And there's a market price for how much you have to pay a seller, right? And therefore, they have to be able to clear a certain hurdle. So they have to get $200,000 a deal or $300,000 a deal in order to get the margins that you want.

Starting point is 00:04:54 And so, like, that margin is directly impacted by price. And so, to Michelle's point, if somebody else created the category and it's mature, the price point's probably already set and you don't have a lot of flexibility. It becomes like tissue because it's already subject to commoditization and other pricing pressure. Networking, tissue, everything that's

Starting point is 00:05:10 mature is being set. But if you're doing something new, you get to define the narrative of that value and show that value yourself. But there's an inherent cash money to here, which is when you are in a market creation, category, or market not ready situation. Kind of we're conflating all three, but for all in terms of purposes,

Starting point is 00:05:25 they're the same thing in this context. You are asking people to bet on something new, and how can you get around this when the value might be huge, but it's not proven yet. You don't have product market fit yet. So how the fuck do you expect flashed by you not cussed because I always get people mad at me when I cussed,

Starting point is 00:05:42 but oh well, like how the heck do you expect people to then invest at a high price when you haven't proven anything yet? And you're creating it. So it's like this weird chicken egg. Tell me how you guys have both gone around that one. Yeah. I mean, your ACV doesn't start out as high as you want it.

Starting point is 00:05:56 So in the first couple years, number one, your early buyers are visionaries. That's who you're selling to. You're not selling to the broad market in enterprise. You're selling to like the 5% of visionaries who basically embrace a vision and love working with you because they're betting their company on early adoption of technology. And so when you really look at it, you're not selling them. They get the narrative. They embrace the category.

Starting point is 00:06:17 But in enterprise, there's some magic. that happens. Somewhere between 20 and 50 enterprise customers, you've got the top five in a couple verticals, and now all of a sudden you're really defensible. Now all of a sudden you can go into that deal and you're de-rists in a massive way. And at that point, you see a gigantic inflection in the ACV that you can actually pull out of that account. And ideally you grow that over time and you grow that into multi-year deals. But to me, that's the recipe of an early company. And I think that you can actually turn this into pretty concrete steps that an entrepreneur can take in an early market. This is what I always tell my companies, which is,

Starting point is 00:06:49 Don't discuss pricing until after you've got them to technical close. And what I mean by that is these people didn't even know the problem existed. A month ago, and now that they know it exists, right, but they haven't actually seen it happen. They don't actually know how to value the risk. So the risk could be, to them, millions of dollars of risk. It's unbounded. That's right. So any discussions up front are going to be very difficult for you to do because you haven't demonstrated value that they don't know how to value the risk.

Starting point is 00:07:12 So what I always recommend is deeply engage the customer. Get to the point where you've had your SEs, do pox and pilots. SEs as in system engineers. Yes, part of the presales effort, the technical presale. So they're like, technically this solves our problem. Technically, this is valuable. And then you can start talking pricing. And a common mistake for people that come from mature markets is they're like,

Starting point is 00:07:30 oh, you know, I've got a list price and they put it on the website before they've even talked to the customer. I mean, you've basically given yourself a haircut before you've even started. This goes down to the advice that Mark and Ben always give to everybody. I feel like it's like their two-word motto, which is raise prices. Raise prices. I'm not going to like meditate on that, but that's like their big message. Okay. So then back to this notion of early customers as being visionaries, they might be the only one.

Starting point is 00:07:53 So then how do you deal with that? Because you might have one internal champion, two. Hell, you can even have 10. But how do they then get like everyone else on board, especially with enterprise software where there's integrations involved and multiple stakeholders? Tell me how you convert those other people or arm them to make the case for you. Well, that's where product marketing is just like the lifeblood of an enterprise software company. What is the box you're drawing for the customer to buy? How do you define the box? What's in the box? What's outside the box?

Starting point is 00:08:17 that's product marketing. In doing that, you define your entire competitive landscape. And like deconstructing your secret sauce, how do you teach one, 10, 100 sales people how to sell what's unique about you? That's the sales enablement side of product marketing. So, you know, we're a little early at usermind for this, but at APTIA, we took our first 20 customers. We got them into a customer advisory council, and we brought prospects into those meetings, and we had them all talk about what they were doing. And there's nothing more credible than big enterprises talking about in detail, their use cases, their value. Because now it's not you selling them. It's the customer selling them. So to me, whether it's building a community or it's case studies that you arm the field with or it's reference calls or it's, you know, business ROI calculators, your job is to basically take all that proof that comes out of your first 20 customers and turn it into materials and tools that you can teach the other sales reps how to use. Like you're not going to be able to scale your early success or scale how to sell or scale which persona to target without that capability. I totally agree that product marketing is one of the most critical functions of going to market for an early enterprise company. Okay, so then let's talk about what the product marketing function is and why it's so critical. If I was boiling it down, it's positioning and sales enablement, and ultimately it's synthesis.

Starting point is 00:09:29 What do I mean about positioning? By positioning, I mean your job is to basically frame the problem, the value, and the technical solution for the customer. And ultimately what you're trying to do is set the buying requirements such that your differentiation is the thing that the customer will value most. And so it's a mini narrative, right? That's what product marketing is. In a sales cycle, first you're convincing them of the problem, that's the POV, how to think about something in your company differently. But ultimately, what you have to do is argue that how you solve it is unique, better, and different. And that unique, better, and different needs to be defensible against the other vendors you're going to be competing with.

Starting point is 00:10:05 product marketing are the people who decompose that. And quite often in enterprise, those differentiations are very technical. You have to be able to translate differentiation into things that you can then scale into the field. So that's the other half of product marketing to me is sales enablement. All these tools so that you can train sales and pre-sales to replicate and basically go sell the same way. You want to execute like a machine to the same people. So you're nailing your message. You're nailing your differentiation.

Starting point is 00:10:31 And if you get really good at it, you're also laying landmines for your competitors, right? You're setting up the entire criteria so that, look, you want the buyer to organically come to the conclusion that you're the only solution that they can choose to solve this problem and there's compelling reasons why it's you. That's product marketing. I'd say 70% of early companies in enterprise, they're trying to figure out how to do sales. And the first thing I look for is, like, do you have a product marketing function? Yes or no? Because, like, there really is no single point in the company that better encompasses the ability to sale something in a repeated fashion than in product marketing, right? And so it's interesting because I find the inclination.

Starting point is 00:11:04 is you're criticizing sales, when often, like, the salespeople are doing the best that they can. They just haven't gotten the tools. By the way, and that brings up a third function of product marketing, which is what I call playbook development. So early product marketing is positioning and sales enablement. As you get mature and you start to see enough numbers of your deals to where it's really clear that there's a set of repeatable plays, every company I've been part of, you find a couple motions. You're not just going to sell a single motion. You're going to sell multiple plays.

Starting point is 00:11:30 So at AppTio, an example would have been we had a sales play called, you know, Bill and materials. And so you're trying to find a new CIO whose businesses are frustrated with IT lack of transparency. And so what you want to sell them is essentially a bill of materials from a supply chain that they can deliver to their buyers to say, here's the cost quality and value of IT. Or at user mind, you know, a play is we dovetail under new chief digital officers. We're looking for business transformation initiatives. And if you have journeys mapped, now you're ready for us. So it's basically the set of indicators, whether it's the initiative or the problem, the customer has, the person you're going to go talk to, the set of messaging you're going to give them,

Starting point is 00:12:08 that it turns into a product sale at the end, but it's how to find the ops, right? And that's a sales play. That's like the full prospecting, selling motion that ends in technology. That's what I mean by motion. That's what I mean. But you just don't see that until you get a little more scale. I have to have fun. This is so beautiful.

Starting point is 00:12:24 A lot of people, they view sales, is I'm going to give, you know, one slide deck to somebody, you know, to a salesperson. They'll take that slide deck and then they'll be successful in selling. And, no, like, actually, you're developing an algorithm that they need to follow that has a lot of if-l statements and things like that, right? Which is a play, what you're saying. But it's true. So, like, for example, like, you're looking for certain actors. Depending on situations and use cases, you'll change what you say. Like, I'm used to selling to high an enterprise and telcos, man.

Starting point is 00:12:53 We're talking three-year sales cycle, you know, four people in the account, you know, navigating organizations and suborganizations from, like, the decision maker all the way up to the C-suite, like, just real complex. There is no single battle card that'll do that. These are these very complicated things. And I do think that product marketing is responsible for generating that algorithm. Before you guys get too excited about this playbook and the play zone, I do have to ask. You're in a category creation market readiness situation. You're also in a position where you don't necessarily know you have product market fit yet. So what happens if you have so much of a playbook that you're missing out on opportunities that are emergent, like, oh, this is a use case we're hearing about,

Starting point is 00:13:30 that we actually could steer our product to more focus on. Because you might build that play off the core use case that you think, but your hypothesis might be wrong. You don't know what you don't know. So how do you go around that? One of the primary functions of an entrepreneur is to actually get access to real market signal. And it's hard because all of our capacity for delusion is so high,

Starting point is 00:13:50 and we really want it to be working, and we really want to have product market fit. And the reality is, listen, if you have a sufficiently charismatic founder, they can sell anything to anybody, right? And that's not necessarily signal. Like that's not necessarily, you've got product market.

Starting point is 00:14:04 You can always find something. You can always say the right thing and they wanted to engage. So you can't cash out on charisma. Well, but unfortunately, you can go for a long ways, but you can't scale it. And so it's important in the early days to have that motion, but you have to be very self-aware.

Starting point is 00:14:16 You have to realize that you're starting brush fires, but they're just brushed fires and they may go out. But at some point in time, just because you're getting dollars and just because they're taking meetings doesn't mean that this is signal. I mean, even the customer's capacity for education is enormous. they're quite happy to pay for you to educate them.

Starting point is 00:14:32 So this is a real, real important thing for enterprise entrepreneurs to try and figure out what to do. It's like, what is real. I actually love to hear Michelle's view on what the real signal is. Yeah, no, I fully agree with that. It's funny, when we do deal analysis of user mind, we actually call these deals relationship deals. Yeah, yeah, sure. And I, we call them out that way. Interesting.

Starting point is 00:14:49 So, you know, to me, look, the signal comes when you get enough data to see patterns, patterns that validate your ideas. So if I look at like the first two years of user mind where I'm talking, talking to 10 or 15 customers, there's just not enough there to actually start to see patterns. And particularly because a lot of that was relationship-driven. So to be honest, I never overweighted my conclusion that much. You know, once you start to get the sales motion working where, like, lead gen is not from a CEO discussion where lead gen is actually starting to happen, and you start to see customers

Starting point is 00:15:18 kind of get far enough into the pipeline and either close or become successful, I'm a big fan of, like, actual deal analysis and really looking at who's the title and what's the initiative and why did they buy, you know, in loss analysis. So it's not just a post-mortem, but you're actually really figuring out what worked. Exactly. In fact, we just went through it and prepping for our kickoff, and we found a couple really interesting common patterns that customers had that if you'd asked me, I would have had no idea that those were really true.

Starting point is 00:15:45 You get that data back. Yeah, and so I think just being really rigorous, this is kind of very fascinating, where if you look on the consumer side, product management is very, very data-driven. It's become very data-driven. That's sort of a big shift in the kind of product management function. but product marketing should be equally data-driven. You're looking for patterns in who's the buyer. What's the initiative?

Starting point is 00:16:03 What's changing in the organization? You're trying to find out what's common about the things that you're doing because that's the stuff that you can scale. Yeah, and maybe to make it even one step more concrete, here are key indicators. This is not an exact science that I look for that I'm like, okay, maybe there's something there. So the first one is if you actually have a production deployment,

Starting point is 00:16:21 there could be something there. I mean, like, it's quite possible to get a ton of engagement and a ton of money and do pox and pilots and everything else. That's actually a really good point. And still, it's not actually moving. You can even get license revenue and it still remains shelfware. But if someone puts it in production, they want to use it.

Starting point is 00:16:36 The second one is, like, across multiple deployments, like there's a similarity in the use case that you've sold, totally to your point of patterns, right? Like, listen, if one brought it to solve one, another problem, another one, another problem, you may have just built something very general, like a compiler, and you're just kind of form fitting it into whatever they need. And then the last one, and this is kind of the more touchy-feely, but once you actually start to see a repeatable sale from an on-ex,

Starting point is 00:16:57 then I think you now have good signal. So for example, anybody that can push the deal through without actually having the original founder, I think then you're kind of getting close to product market fit. But it's unbelievable the capacity for the customer to pay to learn, and it's unbelievable the ability for strong founders to make money and sell without their actually being a good product market fit. So something I think everybody in this situation needs to be very aware of.

Starting point is 00:17:23 Okay. All right. So let's now talk about navigating the enterprise, because one of the best lines I think I've ever heard is that navigating enterprise is like navigating government. It might be like navigating a city. There's lots of different players

Starting point is 00:17:33 with lots of different agendas and it's not necessarily a unified view. And one of the beautiful things about software is it's malleability and ability to cut across. However, you've got to get in the door. So how do you guys navigate organizations with software as sort of the vector in? How do you break down silos?

Starting point is 00:17:49 Well, you know, it's interesting. So I always have a pet theory that if you can create a new role in a company, it's the ultimate act of category creation. You know, at Aptio, the ultimate expression of TBM, technology business management, is that they're now our TBM people in the company. We created a new function within finance and IT and a new set of roles and responsibilities to the point where the title of that person changed and their job responsibility to change. That's the ultimate expression of categorization. The ultimate expression on categorization is software changed the work in the organization.

Starting point is 00:18:16 Therefore, the org looks different. That's my favorite thing about software. Yeah, I love it. And, you know, when I founded UserMind, one of my central premises was the line. between IT and the business is blurring. If you look at the future, majority of software applications that are going to be built are going to be consumed by non-it. They're going to be bought as SaaS. And so you end up with actually now HR sales finance, our gigantic IT organizations and they don't even realize it. So one of the questions I asked myself is like, how is the organization going to

Starting point is 00:18:44 change? New teams are going to get formed in order to manage this technology. People are going to realize that you don't want to manage marketing software and sales software. What you want to deliver is services. So my theory is that customer experience, this idea of customer journey is the same idea that transformed IT and reorganized IT. And so if you play out this idea, you know, 10 years from now, my belief is you're going to end up with a business technology team, whether it dots into IT or it stays in the business, it will own all of the technology end to end. And it will be responsible for end-to-end customer journeys, end-to-end customer experiences. So the ultimate outcome is that there's a new role, a new function, a new team, new job titles that get created. But that

Starting point is 00:19:21 It takes a long time. But that's what we're all trying to do. When we talk about, you know, it's a dent in the universe. You're changing the way companies work. You're changing what people do on a daily basis. So that's what I believe categories end up doing. And listen, if you're entering somebody else's playing field, like you're selling, you know, tissue or something else like that, you're playing by somebody else's rules. So a lot of the time you're walking in the existing art structure, which is built around an existing procurement process.

Starting point is 00:19:46 You know, there's existing roles that are used to have relationship to existing vendors and budgets that are being allocated to certain things. existing criteria baked into the organization for what they value and think is important. That's exactly right. And so, you know, it's almost like things happen in two phases, totally to your point. So the first one is you're reverse engineering all of the context around those things. How does this person think? How is this budget allocated? Like, we did this with network virtualization.

Starting point is 00:20:08 It didn't exist. It wasn't a budget. And the first question we asked is like, are we doing networking budget or are we doing security budget? We're doing virtualization budget. And then we said, who are we selling to? The networking person and the virtualization person. We found out it was a new person. And totally to your point, after.

Starting point is 00:20:21 we were done, there was someone that was responsible for the virtual networking layer. That's phase two, right. Early on, you're absolutely right. There's important key aspects you've got to navigate and understand. And then hopefully, if you're doing category creation right, you create your own. And then you actually control the definition of the context around them. And then others have to navigate in your week. And by the way, customers are looking to you for thought leadership. Yeah. And ultimately, I always say that in a category company, product strategy also has multiple chapters. So to me, you know, chapter one is platform. I mean, you're leading the customer with your vision. But good category company is creator.

Starting point is 00:20:51 is productize content into the platform so you productize your customer advantage. By the time somebody else pivots into your space, ideally you've created more differentiation. It's not just platform based on that customer feedback. I want to go back to this idea you guys keep touching on, which is thought leadership and narrative, and it comes in different forms.

Starting point is 00:21:08 But one of the challenges, in Martine, in your case, you guys had the narrative baked before you even started selling. You had all those papers and all these beautiful things. You guys knew the value proposition. You wrote a paper that actually software-defined networking, the enterprise. You already built that. You had your content, frankly, literally. So why was it so freaking hard to get started then? If you had that already, the narrative was there. I mean, the level of naivety I've had over the past decade in general, right? It's just been

Starting point is 00:21:34 enormous. And this is one example of that, which is I came from, you know, an academic environment where, you know, we kind of argued and understood all of the properties. But if you're living in kind of that bubble, you forget that other people may not even recognize the problem that you're solving. And so you're kind of coming with a solution without even having to find the problem, right? And it's like, this is such a cliche, but it's like the Henry Ford quote, which is like, if I asked them, they would have asked me for a faster horse, right? Which, by the way, that's the folklore, but he actually said to say that, but that's still true, which is like. But if he did, but I think it's actually, but I think it's actually

Starting point is 00:22:08 germane. It's a truism. It's a good truism. Yeah, it's very useful. Yeah. So, I mean, it's one of these things where, like, we were probably 10 steps ahead of them. And I think so much of building an early enterprise company and changing the way the world works is understanding how people view the environment, mapping yourself to that, and then incrementally changing it to understand the value of your solution, which is a multi-step process. Yeah. Yeah. Well, I always tell people, you know, I think this is why, you know, when you raise money,

Starting point is 00:22:35 when you found a company, I think there's a lot of pressure to basically build a better existing thing. It makes more sense to people. It's easier to monetize. By the way, it's really clear who you should be selling to. I think very few investors and founders have the patience for the level of uncertainty that it takes to build a new category. And I think that's because, like, you're literally debugging every piece of the supply chain. You don't exactly know who's ultimately going to be your buyer.

Starting point is 00:23:01 You don't exactly know if, even though you frame the problem, you don't know exactly what initiatives. What are the repeatable signal that you can have your sales team listen for that says this person's likely to value my framing? You haven't convinced the analysts or anybody in the world that, like, your idea is super provocative. and really right. They have one small piece of what you're talking about. Like, if you're doing category creation, you would think, like, well, either you're competing with some existing set or you're competing with nothing at all. And it actually tends to be, like, not either, right?

Starting point is 00:23:28 So often in category creation, you're actually competing with the status quo. That's a very nuanced message to get across without calling the baby ugly, right? Especially because people inside that company have a lot more skin in the game. They're not going to mess around your thing. You're basically saying the way that you're doing it is wrong. I mean, it's not like there's no competition. That you're competing against an existing process or maybe a banded solution. there's some ownership of that.

Starting point is 00:23:47 And then if you start to have a little bit of success, then every company in the world starts to position against you, right? So then all of a sudden it's like pivots from like the incumbents, every other startup says they do what you're doing, even though they don't. And then now it's like almost like shadow boxing. You're positioning against like, you know, people that have taken your tagline and so forth. And so even just from like that one narrow view of competitive positioning, categorization is very nuanced.

Starting point is 00:24:10 But what if you're, so you talked about the sometimes the competition is a status quo. And that's a really key message here, especially in a market. creation, category creation situation. How do you navigate the build versus by thing and the whole not invented here syndrome? I used to see this all the time. So first of all, if people are thinking they're going to spend money to build your thing, that means the problem is acute enough that they're willing to put money there. So from my point of view, that's signal.

Starting point is 00:24:35 That says your idea is probably right. So don't be depressed by it. No, no, that's a great validation point. I just want to say we actually look for that in diligence. Oh, interesting. So like when we're diligent company, if we find band-dated, like, me solutions that are already out there, that's positive. Interesting.

Starting point is 00:24:49 Fascinating. So to me, that's good. And by the way, then the other thing as an entrepreneur you have to understand is if what you do is really right, there is probably a segment of the market that is going to build it. It's so core they have to build it. But that doesn't mean your market isn't gigantic. Like, from my point of view, you know, majority of companies do not have the amount of money, the commitment to tech, the good enough developers to really actually go deploy it.

Starting point is 00:25:11 So first, that validates the idea. Then the second thing is, how do I sell against Bill versus Buy? Right. And look, now I'm making a business case. I'm trying to argue the ROI of not only not tying up opportunity cost, right, of your existing developers to build this thing, but the ongoing cost of maintenance and the benefit of like, I'm going to do this for a thousand other customers. So you're not just going to get the thing you rolled. You're going to get the benefit of every other customer and every other feature and every other thing. Right. It's like the whole premise of SaaS and cloud, anything in that sense. You're literally sharing R&D and insights. To me, this is the next phase. It's like you get past bill versus buy and then there's some vendor who's like, you know, 70% of what user mind has at 20% of the price. And now you have, now you're in war. I like that phase too. Like, that's my favorite phase. War phase.

Starting point is 00:25:53 But just the other bookend on the competition is basically an incumbent selling on futures. Oh, yeah. What do you mean by that? So a fast follower builds like some crummy version what you do and they basically give it away. That's one bookend. The other book in is like big incumbent X says, we're going to do exactly what, say, user mind does. We're going to do it. It's on our roadmap, you know.

Starting point is 00:26:13 But because they have the account control and because they have the account control and because they have dollar leverage and because they can like play around with discounting and stuff, like sometimes the companies will. There's a segment in the market that buys that. But then how do you as a founder actually address those two cases of a competitor who's essentially trying to position in the same space or an incumbent selling on futures? That's why product marketing matters. So product marketing's job is to articulate how whatever it is, architecturally they suck

Starting point is 00:26:39 or feature-wise they suck drawing the box. Right. So like the things that only you have, why is that a must- have for this customer. You know, there's one-way doors and two-way doors. I'm really big into painting the other vendor as a one-way door. Most enterprises that I sell to have an adoption curve. They want to think about a four-year implementation cycle of a product, a cheap competitor. They'll get you 20% of the way. We're going to get you 100% of the way. And by the way, you haven't even thought about the problem deeply enough to understand that, yeah, this year you may want

Starting point is 00:27:06 some simple rules. But eventually, you know what you're going to want? You're going to want all machine-learning-driven customer journeys, and we're the only platform that can scale from simple rules to ML-driven journeys. So it's, again, back to the narrative arc, but that's product marketing. You have to be great at product marketing. That's great. I have nothing to add. Okay, a couple of quick things I wanted to ask. You know, Michelle, one of the things that's fascinating to me is that you guys, you know, you talk about this customer first journey, and this is something that every enterprise wants, every company, forget it, cares about the customer. And especially in this age of Amazon, which is pretty much nailed the whole

Starting point is 00:27:35 customer part of it. What happens when you have non-tech users, though, as your customer? Like, what are some of the nuances of navigating that? Because in one hand, your software gives them superpowers, which is incredible to be like an Amazon. On the other hand, there might be differences in how they deal with software. Like, what are your lessons there? Well, one, I think the future of coding is a non-technical people. I mean, you know, user mind is fundamentally a rules engine for non-technical people. So like when you think about the future of innovation, it's democratizing development. The future of innovation is not having more developers code. The future of innovation is getting non-technical people to be coding. You know, look, I think

Starting point is 00:28:09 our belief is that the answer is you actually need both the technology. for the business users. You want to empower them, free them, but you need controls, both security, data, promotion, permissioning for IT. And so the winning technologies, to me, are ones that straddle, both the really technical people, and empower the business, both put controls in place so they can't just break production by doing too many deployments. Just one quick thing, and it's more of an underscore, which is if you have an enterprise product that's going to market today to a non-technical user, say marketing, for example, Like what we're seeing is that the organization hasn't fully shifted.

Starting point is 00:28:46 And so most of the products we see in the space have to position both to IT and to the line of business. And it used to be just core IT or you could imagine just the line of business. Now, you know, one company I'm on the board of, like literally there's two pitches. Like if the IT guys in the room, you do this and if it's, you know, the line of business is that. Now that may change in the future, but now realize that there are two very different stakeholders that have very different ways of speaking that you have to appeal. appeal to. This is another thing that's completely come up in this podcast multiple times is this two-phase thing because you are in this market creation situation. You have people now where their head is at and where they're going. And then you have this like double phase on a lot of the things you do basically. Actually, this has been a learning, like a big learning of mind in the last two years. It's like we all talk about the line of business being empowered. But we talk about less is that it's a transition that isn't complete yet. Right. And so like it really is about navigating both sides in a sales process today. The technology in business is so complex now that you actually need IT engaged because you're like building an SOA system. Like if you go to even a simple SaaS company and you ask them, you know, how many tools do you

Starting point is 00:29:49 have? It's like 50. How do you connect them together? Well, that's a really, like, you know, that's really, really complicated. By the way, you change Zora and it breaks Marquetto. Like, how often do we hear that? So when I look at that, I actually think now running the business is a very complicated technology problem in the front office. There was a narrative for some time that like IT's dead. I think IT's changing. I think IT's going to become an integration and configuration organization. and it's going to become horizontal. For real modern enterprise platforms, you sell the value to the business, and you sell the technology challenges to IT.

Starting point is 00:30:20 And you need both. And that's a complex sale. And by the way, if you know how to do that well, you win. But as you said earlier, you have to be the kind of entrepreneur who can handle this uncertainty and play this long game to win. So what's your parting takeaway or mindset or advice for others trying to do this? Invest in product marketing. Your product function.

Starting point is 00:30:40 Yeah, I mean, look, the beauty of enterprise is that, enterprise can be figured out over a number of years. So the reason why a founder out there is listening to us should be super excited about enterprise is that in the enterprise, relationships are forgiving and people want to help you succeed. These enterprises, we don't have people in their office every day wanting to change their life. And when they find people who they believe really want to do that, they want to work with you to help you be successful. And that, those relationships, the customers, if you pick the right first 20 and you know how to realize which piece of what they're saying is really right, they will actually help you figure all this stuff out. And I think, to Martin's earlier

Starting point is 00:31:14 point, you just need to be really squinty-eyed. Like, you as a founder have to be on some level, super delusional and convicted that there's this big market. But you have to be really open on the details. Maybe your persona's wrong. Maybe your feature's wrong. Maybe your positioning's wrong. And like, you're going to iterate and be patient with yourself. Be patient. Because in the enterprise, like, what I thought in your one of the company and what I thought in your two of the company and what I think now in your three of the company, they're all related. They're all related. There's a very clear arc to that, but they're not the same thing. And that's success.

Starting point is 00:31:44 That's not failure. That's great. Well, thank you for joining the A6 and Z podcast. My pleasure. Thanks, guys.

The a16z Show - a16z Podcast: Creating a Category, from Pricing to Positioning

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