The a16z Show - On Fear and Leadership: Product to Sales CTOs & CEOs

Episode Date: December 4, 2020

There's a few ontologies for describing the phases leaders -- and their startups -- go through, whether it's product-sales-etc. or pioneer to settler. In any case, as companies evolve, so must the leaders -- but can the same person transition across all these phases? When and when not; what are the qualities, criteria, and tradeoffs to be made?In this episode of the a16z Podcast, originally recorded as an internal hallway-style chat (pre pandemic!) a16z general partner Martin Casado, who co-founded but decided to remain CTO of Nicira -- and previously shared his own journey, lessons learned, and advice for founders about bringing in an external CEO and the question of "to CTO or not to CTO" -- and Armon Dadgar, co-founder (with Mitchell Hashimoto) and CTO of HashiCorp, chat with Sonal Chokshi about both managing their past psychology through these common questions and decisions. They also share their strategies on managing the specific tactics behind it all: Everything from the "dating" process of finding an external CEO to figuring out swim lanes; handling debates and decisions; who presents, who sells. And while the conversation is a brief glimpse into their longer personal journeys, there's lessons in it for startups and leaders of all kinds on the art of hiring and sales, managing credit and conflict, and more... Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that 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. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi, everyone. Welcome to the A6 and Z podcast. I'm Sonal, and in this episode, part of our ongoing founder operator series, which you can find more of at A6NZ.com slash founder stories is about founders wrestling with how to evolve their roles from product to sales and the question of bringing in an external CEO or not. The conversation took place as a hallway style chat and features A6 and Z general partner Martine Casado, who co-founded and was CTO of NICERRA and shared his own journey, lessons learned, and advice for founders at A6NZ.com slash external CEO. And then the voice you'll hear after both of hours is Armand Dadgar, the co-founder and CTO of cloud infrastructure automation company Hashicorp, which enables enterprises to provision, secure, connect, and run any

infrastructure for any application. And while the two share their own journeys, our conversation is really more broadly about the phases that all leaders and startups go through, though they may end up in different places. In this discussion, we touch on everything from managing one's own psychology to managing specific tactics, discuss swim lanes and what enterprise sales means for CEOs and more, but we begin by outlining different mental models for describing different phases of leading a company. So I feel like leaders and startups go through three phases. And startups require three different types of leadership phases. The first one is a product phase. So if you're going to be a leader of a startup early on, like you have to be a product leader. And your goal is to find

product market fit, which is syncing up a technology and a set of technology trends with a user and a need. And so you have to be kind of piped into the nervous system of the technology, of the tech trends and of the users and how they use it and of the problem domain. And if you're not piped into that nervous system on both sides of that, especially in core infrastructure, like Armand and I are both like core infrastructure geeks, then I don't think you can lead the company correctly.

So the first phase is the product phase. The second phase is a sales phase, which is now you've got product market fit. Over time, the economics of a company come down to go to market because that's your variable cost, right? R&D becomes this kind of sublinear cost, And then to get more customers, you need to spend more money. That drives your margin, which drives your valuation.

That's go-to-market. And so if you don't understand how to do that go-to-market and becomes a sales leader, like you kind of miss on that stage. What did you mean by the R&D cost trade-off of variable costs? I actually did not understand what that meant. Yeah. So this is in the spirit of what is the most important thing to accomplish very simply in each one of these stages. So in the first stage is finding product market fit.

The second stage is getting a repeatable sales motion. in a way that's solvent and has good unit economics. And the reason that that's so important is if you look at the valuation of a company, the valuation of a company is driven by growth, by margin, probably by things like net dollar retention. Those are the numbers that feed directly into the valuation. And those are driven by go-to-market. And the reason they're driven by go-to-market is because that's a variable

cost. It's a cost that you have to keep reoccurring in order to grow. Engineering, on the other hand, especially in software, in order to bring on that next customer, you don't necessarily need another engineer because it's pretty cheap to replicate bits, right? So engineering tends not to scale linearly with the customers, what go-to-market does. So the more salespeople you have, the more customers you can get. Exactly. So you normally have relatively capped productivity of sales reps. It's very hard to increase that. So to get more dollars, you get more salespeople, or you start to do clever things with like indirect sales channels. But that will drive your valuation.

And so it's just very important to get those foundations right. And then the last stage is an operation stage. And the operation stage is you're trying to get something to scale. And now you've got all these operational challenges, like you go from a single product company to a product portfolio company. You start engaging the channel. You start engaging maybe these big partnerships. And so it's a lot more of the mechanisms and of running companies

or multiple companies that come into play. And so I think as a leader, you have to stay. step up to each one of these stages, and then you either have to make the transitions to these stages, or you have to bring in the people that know how to do that. I love that framework. The first phase is about the technical product, and, of course, the market user fit. The second phase is about figuring out how to really sell it to the right customers, sales, and go-to-market motion. And then the third phase is really about scaling it.

And when you say product portfolio, you mean expanding product lines, additional feature sets, other new product lines, et cetera. Yeah, yeah. Or increasing the customer base without cannibalizing your customers that you really get into like business operations at the third phase. Right. Growth is often where M&A will come in. Sure.

And a lot of the strategic things will come in. Yeah, I love that ontology. I hadn't heard it that way. There's a different sort of phraseology. I've read and I like to use, which is it starts with a personality type that you might describe the sort of the pioneer, right? It's the person who likes high risk, high uncertainty. They're sort of forging the path.

And I think that's sort of that phase one that you talk about of defining product market fit, right? there isn't a product, there isn't a clear market, you're sort of doing that pioneering work. And I think behind that person, you bring in the town settler, and their job is to say, okay, great, you forge the path, but now you need some process, you need some repeatability, you need some structured how the company runs.

It's no longer, you know, five people in a garage. And I think that goes to your point of, like, that town settling phase is very much the great, we have the product, where is the go-to-market fit, what's that repeatable structure. And then I think that third phase that I've heard described is like who you need as a leader as a city planner. That's perfect.

Like you have a structure, but now it's like, great, it's not 10 houses. Now I want to build a metropolis. Right. And, you know, what I like about describing it that way is you can almost imagine in your mind the personality differences, right? And it becomes so obvious that, yeah, the city planner is a fundamentally different person than the pioneer. I do think it's worth pointing out that often it can be the same person. But what I think people miss is how hard founders that make those transitions work to make these first class problems. There are fantastic CEOs that come from deep, deep technical backgrounds and made transitions into

great sales CEOs. When I speak with them, it's like I'm speaking to a salesperson. I mean, like they're just obsessed with go-to-market. It's all they think about. It's all they talk about. It's the books they read. All the questions that I get. It's how the board is done.

And so I absolutely think those are the three personality types. I think often three different types of people can fill that. But when the same person does, they make almost a full metamorphosis. If there's one takeaway, it's like if you want to make these stages yourself, you have to be totally obsessed with the stage that you're in. And you have to be self-aware. And quite frankly, this is where I think a lot of people bring in executive coaches and leaders to help them train them. And there's so much value in that because it requires a awareness, B, willingness, and see, quite frankly, ability then to evolve. Because not everyone comes along on that journey.

And sometimes you might also, for, make a choice, which we can talk about in a moment. I'm also glad you pointed that out, Martine, because what I also want to push back on a little bit, Armand, is, is it really that linear? We've had Joti Bansel on the A6NC podcast of App Dynamics, and he did a podcast on the evolution from a technical to product to sales CEO. Then we had our own David Ulovich where he told his story from OpenDNS to Cisco, et cetera. And it's a similar kind of thing. When David told his story, it feels like we talk about this journey as a bit of a linear journey. And of course, I understand it from a growth and scaling perspective. But it seems like there's a phase where you're trying to figure out go to market and sales and technical product at the exact same time.

Right. And so how do you kind of navigate that bit of it? Yeah, it's a good point. I don't think it is totally linear. The frameworks, I think, are a useful mental model, but I think they're not reality. And so I think the reality is it's like a company might be at a super early stage on the go-to-market, but actually might be at a mature place from a product perspective, right? And so there's this non-linearity of like you might be in different places and different parts of the company. One thing that I've noticed is even something as simple as a different geo can actually be a different phase of the company. It can actually have to do with product. and not just sales. So for example, you sell in the U.S., then you go to, like, say, Europe, and then the actual competitive environment is different, right? And so the actual positioning of the product and the problems and use cases you solve to, which actually roll back into product. So absolutely the case. I do think it's useful to think of these three tiers as kind of like energy

states. And then you can always move down and up into energy states. Like, let's say that you get to the sales energy state, but then there's a macro shift in the environment and then now you're back down in the product market fit energy states. But here's the thing for a leader. First, you should know which energy state you're in. You should know, like, is like the priority sales, is it operations, is a product market fit, et cetera? And then my number one test is if you wake up in the morning, if that's not what you're thinking about, like you've not yourself made the transition. Your motions as the leader, particularly the CEO, should be 100% in line with like that primary focus of the company. So then I have a question for you guys. Is it always in the

CEO's hands to make this choice? Did you have a choice that to be the CEO or to be the CTO? Like, did you get to decide or did someone decide that for you? I got to ask many, many times to be the CEO of the company. And I actually went through three CEOs. And there are long periods of time where there's transition where there's no CEO. And in which case,

I was the de facto CEO. But what was interesting was for me, I always thought the CEO is kind of a clerical job. Seriously. I feel the same way. I'm like,

I want to be like the person who's in the metal of the creativity. So I feel for you. Right. I'm like, okay, my entire job is to find repeatability

and find product market fit and to align this technical architecture that's research to the market. I don't have time to deal with facilities. I don't have time to deal. with like IT and like all these other things. I've got to focus on that. And in retrospect,

it was my very naive perception of what a CEO does. I honestly thought that it would be a waste of my time. But then we found product market fit. And then we went to a transition. And then the question was like, okay, Martine, do you want to go do sales and lead that stage of the company?

And I actually thought about it a lot. And then I realized at that time, we needed that knowledge in the company. I didn't have that knowledge. I started talking to people that had that type of knowledge. And my calculus at the time was like, you know, I can get someone who's pretty good as COO and do that. Or I can get someone who's really good and give them a CEO. And having created the technology, you know, like I wasn't worried about my position in the company or clout or credibility.

I mean, I've been there for three years. It was my company, et cetera. But I love the Hachicorp story because they were actually solving their own problem, which is a real problem. I kind of had the more crooked path, which is we'd come up with a solution, which was kind of a grand unified theory of doing network. Software-defined networking. Software-defined networking. And it could solve a bunch of problems, but we weren't exactly sure what was like the most important problem to solve. And like, having been trained to think about like, okay, like we've got this kind of very elegant solution. Now, of course, all these problems will fall is kind of the wrong thing. And so coming out of academia, we almost

had to unwork that muscle and just really be very use case focus and then use that to figure out the mechanism as opposed to the other way around. And for us, it probably took two years. I see this get repeated all the time. It's like one of the major pitfalls of going from academia into startup land. Well, I have a question about this because one of the challenges, and you've actually argued previously on other episodes of a podcast that you actually think that computer science is now like more of an engineering group plan, like science. It always was honestly. Right. Maybe we're just calling out the truth. The emperor has no clothes. Maybe this is what the emperor's clothes are. But the point about the use cases is really interesting to me because the number one thing that a CEO

or a founder of a company has to do, whether academic or otherwise, is sell their product. and figure out who that customer is. And when you start with the use case, it's sort of a dance, a chicken egg thing. Do you get the use cases that that's what the product is going to be? Or is it that it's, you know what, we're over-rotating on the wrong customer, and actually this is not the use case, but they're the ones who are paying us money. Yeah. When people ask me sort of like, what's the biggest advice you to give people

or, like, you know, what was the biggest lesson for you? I think the thing that we got wrong was we actually didn't know who our customer was for the first few years of the company. When people would ask us, hey, who's the customer? We'd say everybody. And what you end up realizing is that's the same as like nobody. What became obvious for us once we actually started building a go-to-market is the two-person garage team, they want to swipe their credit card and pay $5 a month and not talk to you.

And then the person who's in a Fortune 10 wants you to sign a 300-page master service agreement. And if they're paying less than $100,000, they're sort of uncomfortable. You end up realizing that the go-to-market motion is so different. pricing and packaging is so different. The features are so different. When we said, hey, we'll go right down the middle. There's nobody there. When, you know, we started the company, you know, the focus was very much, hey, let's just build the products, you know, focus on getting product market fit, you know, doing the evangelism and building the community around things. And then I think when we had that sort of, I'll call it a crisis of identity, right, which was...

As a company or as a person? Yeah, I guess both. Okay. I guess there's no difference in you're the founder. I guess both. You know, there was this sort of very distinct moment in late 2015 for us where we'd sort of finished building out the open source portfolio. The last few pieces were there. And the board sort of asked us and said,

okay, well, what's HashiCorp of the company? And we're like, huh, that's an interesting question. You know, and I think that kicked off a multi-month soul search for us to really say, okay, when we grow up, who do we want to be? Are we an SMB-focused company? Small and medium-sized business. Yeah, are we an enterprise-focused company? Right, the big customers.

And where we ultimately landed was say, yes, we want to be an enterprise business when we grow up. And then the sort of follow-on question is like, okay, if you're an enterprise company, what's the product? Right, like you don't have an enterprise product. You just have a bunch of open source. And so there was a product discovery. And then I think the third piece of it was, you know, to your point, who leads this? And then all of a sudden, me and Mitchell Hashimoto is my co-founder and the namesake of the company, look at each other and say, okay, well, neither of us has, you know, we barely worked in an enterprise company.

let alone led an enterprise go to market. Okay, well, who's going to lead the company in this next phase? But at some point you had to make a similar decision that I did, which is you could have brought in that expertise in a different role. You could have brought in a VP of sales and like a really good PMN or like whatever. Yeah, why did you not just stay CEO in the more technical but still visionary CEO? And then bring in – because the whole point of a CEO is that David Ullivis describes it as you don't have to be the one who has all the answers. You actually can draw on everyone else to be the experts. So why don't

you take that model, like bringing in someone else? I don't think we actually set out to bring a CEO. We started our search around saying, hey, what if it's a president, COO, you know, maybe a super senior other C-level executive that's not a CEO? And I think as we went through the search, we found David McJanet, who is now our CEO. And I think just the dynamics of his personality and the way him and Mitchell and I sort of worked together, it clicked in this way. And what I love about Dave is he he's so low ego that I think he also didn't feel strongly about like, hey, do you want me to be a COO? Do you want me to be CEO? But there needs to be some clarity around who does what and how. So how did you guys get from the moment of, well, this guy is actually not going to be our president

or our CEO? He's going to be the CEO. And hey, I'm okay not being that CEO. Like, tell me about that realization specifically. Yeah. I think when you talk about the process of trying to bring in a senior executive, certainly at CEO, CO level, it's such a serious hire that the way I describe it to people as like, it's almost like dating for a significant other. You're like, do we have a culture fit? Do we have the same fiscal discipline? I mean, like these like multiple responses. Do we communicate in a similar way? That's right. Yeah, yeah, yeah. Do we handle stress in a similar? Is that the assumption there that that person needs to be similar? Don't you want someone different?

Not similar, but at least compatible, right? Like if you feel like, hey, every time we talk to each other, it's like we're talking past each other or like we're on two different brain waves entirely. Right. So, yeah, I wouldn't say we're carving copies of each other, but there's a certain compatibility and work style. And why did you not want to be the person to Martin's earlier point to just say, hey, I want to learn and take on this skill and, quote, evolve in this way, instead of going to more technical, other stuff, why did you make that fork in the road? I think I'll echo Martin's point, which I feel like was incredibly naive.

And I think what became clear is when we went through this dating process with David, that it was so obvious to me that his depth of experience was so, so much deeper than mine and so many of these sort of go-to-market areas that, yes, could I learn from him and he could be a mentor and, you know, I could sort of come up to speed over time. Sure. But it became obvious that the enormity of that challenge became clear with the more time I spent with him. Yeah. You basically saw someone who's like really effing good at what they do. Why not let them be the best at them and you be the best at you? Exactly. So it's like, am I going to be enabling him to be more effective as CEO or am I going to be in his way? Well, it also seems that we had many similar ingredients. And I wonder if this has to do with it. So, for example, it seems like you and Mitchell didn't have any title fetishism. And in our company, nobody had title fetishism. Like, CEO, CEO, didn't really matter. Like, there wasn't a lot of emotion behind the specific time. Now, job roles there were, but like the actual titles. The second one is actually, ironically, so we brought in a guy named Steve Mullaney, who's one of the core reasons we

are successful. I've learned pretty much everything that I know from him. I'm so happy we brought him in. he also has a marketing background just like Dave McJanet so he knew go to market and positioning and how to launch company and all of these other things which is I think when it comes to product marketing in particular like you can't intuit it you have to have done it and it's

way less systematic than sales I mean it really is kind of like art plus logic plus domain expertise but then also Steve and of course Dave too is incredibly low ego so we spoke for months and in point in time to think, oh, this person's going to want to take over the reins. He's going to change the vision of the company. Like, you know, it's going to do like a palace coup or whatever. And so, like, if you have these initial conditions where you're like, you just want the right thing to happen and you don't have this kind of like insecurity about losing ground and the person coming in, you know they're going to work with you and they're going to be relatively low ego. Then the question is, is basically who wants to do what, right? And who's in the best position to do what? And in our case, and it seems like in your case, we kind of came

to the same conclusion. I think that there's this moment where you're like, if you make this higher, you're sort of handing the keys over. That sense of comfort that this won't be a palace coup is so critical. And honestly, I had a moment. I ended up talking, I remember to Glenn Solomon, one of our board members, and I was like, I need you to sort of walk me off this cliff, right? Like, I'm not ready to sort of hand over the keys.

What did he say that helped you walk you off that cliff? I think it was sort of a reaffirmation. Like, ultimately, you guys are the product visionary. It's your company. the credibility of it's built around the two of you. And so it's like we would obviously support whatever change needs to take place. But I think that was super important for us to hear

from sort of the board. I'm so glad you brought up the board support because I don't think you can do these unless the board comes to the founders and really are very clear about their position in the company. And certainly in my case, to a person they said,

this is your company, this is your vision. We're going to get someone that's compatible with that. And so I knew that they were kind of like on my team as opposed to, again, like, changing the dynamics, right? Instead of making it an adversarial pitting two opponents against each other in an arena. Very, very accretive. And so certainly anybody that's facing this, I definitely think that having the board support is critical. And anybody that's on a board of a company that's going through this transition,

I think really needs to support the founders in these sorts of transitions. Martine, I think is great that you talk about not having title fetish, but quite frankly, that's a luxury because in reality in a lot of companies, you kind of need the title to know roles. Sometimes ownership is not so clear. So there's a lot of fuzzy things that happen in the real world with this. So tactically, did you guys like sit down and iron out like a plan, like a transition plan for how you're going to divide up who does what? I mean, I want the specifics. Like, did you just like dance your way around it?

Because honestly, it's also not fun for everyone else in the company to watch that dance because then they get confused. So how did you navigate that? So I've got a very simple answer, which is ours aligned with basically a transition from an academic platformy as Armand put up. But we didn't know what we wanted to grow up to. We kind of had an idea of what we wanted to build and that we wanted to take to market. And so when someone comes in in that transition, there's just a bunch of new work to do that we weren't doing before in order to pick up. And so that made it much easier as opposed to someone coming in mid-flight. Mid-flight and then like hopping on the pilot seat or something.

So your point is that there was a clear demarcation in the phase of the company that brought in a whole new set of needs. So it was sort of like picking the right moment to like pivot into that next phase. Or lucking into the right moment. Or lucking into it. So not maybe picking it. Amon, any thoughts on that, on the tactical side of the how? It's amazing to me how many analogies I feel like there are between our two stories. I'd say we were in very much the same boat of going from that phase one product market fit into great.

We have the products. There's a community. There's a user base to that phase two of, okay, we have a few customers, but it's not repeatable. There's not really a process. And so that whole build out of the go-to-market and sort of getting it from sort of phase one to the phase two focus was exactly when we brought Dave in. And so I think for us it was really natural. It's like, hey, you and Mitchell keep focusing on the product side of things, product development, you know, things like that.

And Dave helped really focus on, okay, great, we need to bring in new leaders to run marketing and sales and go to market. Okay. So then my next question, there's this tendency, and I actually call it the divide between the head and the hand. And the reality is that while you might say, like, hey, this person's designated as a product visionary, this person's sort of the person who's going to scale and build the operation and the machinery, the reality is that there is overlap. They're not so clearly demarcated. And quite frankly, the best people should not just be where one person is quote the head

and one person is quote the hand. You want a hand who has a head and a head who also has a hand. So my question is, how do you as a product visionary make sure that person is empowered to still have insights into the product? Yeah. The way we describe it is like this is very clear line in the sand where it's like you run this and we run this. Dave runs go to market and we run product.

But I think the reality is we operate much more closely. Like we probably spend hours every week. In some sense, hey, given the same data, we probably are going to come to similar conclusions about what needs to be done. And so that we just spend a lot of time staying in super close sync and it might be, hey, here's what we're thinking about doing here in product, Dave.

Does this make sense to you? You know, gut check us. And similarly, hey, here's what I'm thinking in terms of what we need to be doing on from a marketing investment or sales investment. Does this make sense to you and Mitchell? And so I think it's much more of a partnership

as opposed to, you know, the head and hand never interacting. That's great. Yeah. So I totally agree with that. I'm going to add a dynamic to this question, which is, so you can bring someone in as to say a C-O, like we've discussed. But one of the functions that these, you know, bringing in somebody that's kind of a senior exec that understands the enterprise go to market, one of the primary functions is hiring a real exec team, right? And that's very important.

It's hard to do if you just haven't done it before. And one thing that I've learned is it's very dangerous to give someone the ability to, say, hire. without actually accountability for that hire. So if they're hiring somebody that would report to me, for example, and I had to manage them, because they don't have the accountability, you have a very different process. And so I think that creating your organization

in the way that as you build out your organization, it's very clear that you're accountable for the decisions you make is incredibly important as opposed to none. And the reason I tagged it on to the previous question you asked, which is you're always working very close together, and you share information, and it almost sounds like a totology. I mean, of course, you're in the same company, you're in the same exact team, whatever you're

but you can actually really get it wrong. And the way you get it wrong is you have decisions without accountability, and you have to bake that in somehow. By accountability, concretely, what do you mean? I mean, let's say I know something that maybe Armand doesn't know because I don't go to market and he doesn't. So if I tell him how to do it, but I'm not accountable for what I told him, then basically I don't have to be as conservative as if my job depended on

But this seems to, in my experience, this materializes the most in hiring. Like, if I hire someone to put it on Armand and say it doesn't work out, I'd be like, Armand, you're not a good manager. Right. Even though you're the one who's like sort of has a luxury of being like, hey, hire this person or whatever. That's exactly right. So I would just say, like, as you go into these partnerships, whether you're hiring someone as a CEO or a CEO, just make sure that like these major executive decisions align with

with accountability. Yeah. More direct skin in the game you have, the more accountability you have for that. The way we've done it is basically the entire executive. staff reports directly to Dave. So he has, you know, to your point, the accountability is paired with the autonomy, right? It's not, I'm going to go hire people and have them report to Dave. Right. Because then he becomes a figurehead. You're actually making him empower. Exactly. Right. But at the same time, I wouldn't say that we're sort of been disconnected from the process.

Like if he's the hiring manager on it, I'm sort of number two on that panel in terms of doing the interviews. So we did the same thing as well. I did try kind of more of, you know, I hire and put it under somebody else. Or they hire and they put it under me? And like, tell me. I have a weird tactical question. How do you handle things like all hands where you explain what the company roadmap is and what people are doing? Like do both you and the CEO do it together? Martin, did you as a CTO do it with the CEO? Do you take turns depending on the topic? Well, this goes back to like these low ego CEOs that you bring in. The case of Steve, and he was so fantastic. We would do in all hands and he would be up there, but like I was always up there with him. And if we did press, like I was in the press. And often he wanted me up there and he didn't even want to deal with. it. So like it was customer interaction, et cetera. So I mean, it was almost like the best apprenticeship on the planet because I was, you know, in the line of fire, you know, for whatever it was. And so I do think that if you're going to bring in a CEO, you want someone of that ilk.

I would say one thing on that when we say low ego, which I love that you guys are saying that, but I think it does a disservice to all the people out there who might be aware that they have huge egos. You can actually be aware of your own shortcomings and strengths and you know your swim lanes and where you're strong and not strong. And you can share the stage with others when people play to their strengths and you can be partners, even if you have an ego. I just want to point that out, because otherwise it feels like an insurmountable personality barrier. I guess that's ego paired with self-awareness.

Yeah, yeah, yeah. Or maybe someone knows the right thing to be successful and is able to put their ego aside. They're playing the long strategic game. Yeah, the long game. There we go. And you're about to add something to his all-hand thing, I think. Yeah. When the company was super early and there really wasn't an executive team, it was, you know,

me and Mitchell or Dave presenting at the all-hands on a weekly basis. But once we built out. an executive team, we'd switched over to a new model, which is basically every week we rotate which function presents. The functional leader of, you know, let's say sales and marketing present this week, and then next week it's product and engineering, and then whatever... As it is, there should be room for all those groups to present. That's great. So really, it's like, you know, Dave presents maybe, you know, once a quarter in terms of, hey, here's the retrospective of what happened last quarter, here's what we're sort of thinking

next quarter will happen. And me and Mitchell actually have sort of an out-of-cycle, sort of fireside chat with the founders every quarter or two. So we, we, we're just a little. So we, we're We actually on a weekly basis aren't even necessarily the reporting face of the all hands. So a couple more quick tactical questions. How about the recruiting? So you alluded to this earlier. So, Martine, in your case when you were trying to recruit Steve, there were actually like three periods where you didn't have a CEO. At each one of those, you could have just stepped in and kind of default become the CEO.

A, what made you resist that temptation? And B, how did you actually go about recruiting the right? Like, what did that look like? So when we first started the company, honestly, like the CEO title was just arbitrary. We had three founders, two professors and me. We decided to give the famous professor's CEO title. We all just basically did what we did. And the only two of us actually had a day-to-day responsibility.

So when the professor, which is Scott Shanker, went back to Berkeley, then we decided to bring in an interim CEO while we figured things out. And at that point, I had a couple of the early kind of angel investment would be like, hey, Martine, you should take the CEO, like, this idea, this is your company. And I'm like, listen, like, I don't know this stuff. I really need to figure out, you know, this is the bottom of like the worst economic recession. Let's get somebody in here that can help this. I would strongly recommend ever getting an interim CEO.

We just never should have done it. Why? That seems like a really reasonable thing to do. For me, it goes back to accountability. You can't make the right technical decisions if you don't have to live with the consequences. So I think docked my responsibility to the company because I didn't want to deal with it and I really should have just stepped up and become CEO. I was effectively acting as a CEO anyways, and I should have just done that. So I think I was trying to take kind of the easy path there.

That was a mistake, though it was put front of the board. So I would never do that to one of my companies. I don't recommend doing that. Right. But then, you know, it was actually Andy Radcliffe knew Steve Mullaney, who was, funny and enough interim CEO at Polo Alto Networks for a little while, but, you know, very famous and well-known VP of marketing that had done a number of companies. And we just started talking.

We did that kind of dating thing that went for a long time. And we spoke with so many that he was just such a clear fit. In the history of Nassira, hiring Steve as CEO was probably the best decision I made, full stop. So these things can really change the trajectory of a company. Well, you also had the confidence, though. You were the inventor. I mean, your name is like the first author on the paper.

Well, that was the thing is like that was my research. Right. It was your PhD work. I was the only founder that was still in the company. So I want to pro-bound this a little bit because I want to just talk about the product visionary role and how that evolves. So as a founding technical CEO, I mean, you were the inventor of software-defined networking. Nobody can take that away from you. Like, that's just something you just have this visceral product market fit for.

However, there is a point in everything where there may be conflicts, especially. as you expand into different product lines or different areas, who then makes a final call? As a product visionary, do you get that authority as, well, he was first and he invented it? But what if the company goes in a different direction, especially if you're successful? Quite frankly, when you're successful, you do expand into different directions. How do you negotiate that bit? I think conflict is so interesting because what's nice about it in some sense is it reflects that we're going into it with probably a different set of data and a different set of sort of priors in terms of our belief of why do we think,

decision A versus B is the right thing to do. And I think what's happened for us is oftentimes when there is that kind of conflict, it's a, hey, let's dig into that and say, what, why? Why do you think A, why do I think B? Oh, you think there's a great market opportunity, for example, if we built this product, where I think, oh, actually, that's a legacy market that's dying as we go to cloud, as an example. And so I think that disagreement ends up being a good opportunity to sort of check yourself and say, hey, what are the assumptions we're making and go deeper?

I think what has happened for us almost 100% of the time is as we drill deeper and say, let's figure out what these underlying assumptions are and where does our data disagree, where do our priors disagree? Usually we can reconcile that and say, oh, actually you're right, your data was right or my data was right. And once those are correct, then the answer ends up usually being the right one. Or it's at least we agree on it because of the wrong answer. So to me, it hits on something you said earlier, which is it's actually about, I always say this. It's not what people say, it's how they say it. It's about communication. And you mentioned that you wanted to check communication styles when you were looking at hiring your CEO.

And what I love about that discussion is when you say the word partnership, you guys are partners, et cetera, that involves a style of communication where both people can understand each other's points of view. And the core idea behind what you said is that it's about understanding the thing underlying it. Like what is a rationale driving that thing? And you actually find in many situations in life, let alone company building, that there's actually alignment in people's values and principles on that thing.

But they might get like very prickly if you. can get past that prickly phase. Right. When someone says, I disagree, you can either take that at a personal level and say, okay, you're disagreeing with me personally or you think the idea is bad. That's one way to look at it. Or the other ways to say, you know, there's something more fundamental that we're misaligned on. Yes, exactly. You know, let's go deeper and understand what that thing is. And then it yields opportunities and the idea on both sides. It can actually become greater than the sum of the individual parts. And it goes back to needing that ability to have that honest discourse with one another. If you're not comfortable saying you disagree with someone, then you don't have a level of

trust a level of depth in that relationship. The partnership has to be at that level where you can say, hey, I disagree. Let's dig into it without that being a, you know, whoa. I would love to actually tackle a related thing that's hard for founders to hear, which is, I totally agree with what you're saying, but sometimes that's actually a hard pill for us to swallow, as founders. So I fundamentally don't believe in earned positions. I don't care what you've done in the past. That doesn't mean irrelevant today. That's why I don't like tenure, for example. It's sort of like one of those logical fallacies. So instead of saying appeal to authority, it's like appeal to my credible history. Seriously. I mean, I really think that, like, you should always add value and make yourself relevant. So I think that founders need to stay tremendously relevant. And just because you founded the company and just because you did the core work doesn't mean that you get a free pass. And so in my case, I did the core research. I built the original team. I found the product market fit. I did the product definite. I mean, I did all of that early stuff. Well, no, of course, with another team, I didn't do it by myself. But then,

It was sales time. Now, I didn't know the mechanics of sales, but I got in a damn airplane, and I did sales. And you have to make that transition. And I think if you don't, I don't think the CEO should listen to you. I really appreciate the way you put that of like you have to continue adding value, which is as the company grows, your role changes. Totally. And what I always say is like every six months, my job is to rediscover what my job is.

Right? Because it's not the same job it was when you started. It's not even the same job as a year ago. So that's also why people often say that being a CEO is like the greatest professional development thing. I have a quick question about selling. What happens? You often start in the beginning with the founder. And then, Martine, you made the point that the second phase of the company is to have a repeatable sales process,

which sometimes has product marketing materials and things that people can plug and play without having to have this charismatic person walk into the room and say, here's my vision. How do you scale that in this model? What happens to sales in this model where another CEO comes in? Are you still sort of the showboat pony? I think what I loved about Dave, still love, I should say, is given his product marketing, marketing background. It goes, I think, to Martin's point of, like, that is such a tremendously useful experience. Because really, I think what Dave understood is, like, yes, it's clear

that there's a concrete problem we're solving. It's clear that practitioners use and love the tools. But what the company hasn't done a good job of, right? And me and Mitchell, we're open and honest about it was like, we haven't distilled the core messaging of the product, the core truths of how do we help someone who's not super deep understand? What is the problem? How does the product work? How does it solve that for you? What's the value of it? And I think he has that marketing mind in terms of, okay, I understand the product, I understand this landscape. How do we kind of distill that into the essential truth? And that essential truth can be conveyed whether it's by me and Mitchell as the show pony or whether it's a sales engineer and a salesperson.

So what I'm hearing what you're saying there is basically the difference between turning it inside out, like here's a visionary selling the vision and making it more outward in where other people can articulate that vision and see it and make it more machine readable, make the task. it more explicit so that other people can essentially pick it up. It used to be if you asked me, hey, what does the product do and what's the value? I need an hour to explain it to you. I'm like, do you have a whiteboard and an hour to spare? And I think what he saw is like, yeah, that's, it can't work like that.

You have to have the elevator pitch. You have to be able to explain to an executive in five slides. What's the value? So I'm going to take the other side of this. So there's a very big difference between sales mechanics, which is like, how do you do pricing, how do you enable the channel, how do enable sales, you know, like, we're What are the packaging, what are the customers you go after, like the actual mechanics, and then selling. We're selling is you walk in and you do the knife fight and you show the value and you paint the vision, et cetera.

Now, a lot of the mechanics is a repeatable sale. Like what is the sales deck? How do you position it? How do you do market and how to get in? But here's the reality for the world that Armand and I live in. We're both hardcore tech infrastructure folks. And we've sold to the enterprise and generally about 20% of the deals are 80% of the dollars. And if you're asking someone for $10 million, which I've done many, many times, they have to be convinced on the totality of the solution from the genesis of the company to the technology to the techno strategic landscape to everything else.

And that's done by founders who've seen that they've got the long view. And then, you know, often the SE team, not the sales team. These are the sales engineers that will scale someone like Armand. And so I totally agree that all the mechanisms of positioning and for that transactional business that gives you a lot of predictability. It'll operationalize the sales team. But when I left for about a $600 million run rate and I was still doing, you know, 10 to 30 million dollars. And I do think that that's a very, very important role for founders to continue to play. Yeah, that's a great point, which I think the nature of enterprise sales hasn't changed that much. The reality is like, no, the person who's

going to sign a $10 million check wants to know, hey, are you a partner that I can bet on? You're going to be here for us for the next 5, 10, 20 years. It's very different if you have a small deal size and you're just self-serve, but honestly, if you're paying that kind of money, you want the full red carpet attention. And it's core infrastructure. I mean, like, this is like... You keep saying that, just to make it clear to me, what does that mean that it's core infrastructure?

Like, what difference does that make? So, core infrastructure means it's the foundation you're building your systems on. It's like rebar and... It's like the value that holds up these amazing cloud workloads. This isn't like, I've got this productivity app that I'm using and then maybe tomorrow I'm not going to use. You do want to make sure that you have that relationship. and then you just understand the totality of the vision,

which always includes where things came from and then where they're going. If it's such core infrastructure, honestly, my takeaway is you're kind of entrenched. The switching costs are too high. They ain't going to move, so don't bother. You're going to send other folks on the road. It's not just the initial investment of, hey, we want to partner with HashiCorp and sort of use this as a foundational technology. It's as they adopt other pieces of the portfolio or new features.

It's sort of the same conversation you're having, which is great. Maybe we took a bet on you for this piece of our stack and technology. But, hey, this is a different piece of technology. And as we adopt more and more, the criticality of you to them increases. And I think if you look at companies like Microsoft, almost every business in the world, Microsoft is absolutely critical to their functioning. Right. Like they would implode if Microsoft didn't exist. So basically every new product line that's significantly different than the existing thing that they bought is essential like a new startup within your company.

It is. The way we talk about is we're almost four companies in one. And I think with every new product that a customer adopts, there's another degree of dependency or criticality that they're taking on our relationship, right? Expanding account leads to basically net dollar retention, which is one of the most important numbers to the valuation of a company.

And net dollar retention is how much an existing customer will expand their spend, net the churn, the amount that decide not to do it anymore, right? So that drives valuation more than like ACV. Annual contract value. Any contract value. And so any company that's not focused on making their customers successful and then increasing their value in the account is not going to build a large company.

You just can't do that anymore. So this idea of like, oh, it's based on the infrastructure, I'm going to walk away and not do it again. It's a path to failure, right? I mean, you have to have that relationship and increase it. You have to be invested in the success of the customers. Yes, that makes perfect sense. Okay, so we've kind of covered, you know, the timing that there's actually both of your guys's cases. There's a common timing when you guys made this choice.

So that was a key factor. the idea of partnering. We've talked about the importance of being self-aware and having mental models, even if it's not necessarily linear. We've talked about some of the specific tactics, including different aspects across the board. How do you diligence in this marriage dance? With marriage is you actually have dating, you can reference people.

You could do credit-run checks on them, I guess, and do other background checks. In many ways, it's actually not that dissimilar. Do you spend a lot of time backdoor references, right? People who've worked with them, right, whether above them or below them or adjacent to them, getting a sense of how do they change? treat their peers, how do they treat their reports, how do they manage upward. I think a lot of it

is bringing them into your problem space. I think that was an important part for us was like, hey, let's not talk about hypotheticals. Let me really lay out, hey, here's how our product works. How would you think about doing this? How would you structure a go-to-market? Because you're not doing it in, it's not a 30-minute interview that they come in and then you make a decision, right? Like it's a multi-month process. So they have time to really soak in that context and sort of make an informed analysis. You learn from them. And I think that for us was the really big thing. I mean, you really need to show everything. I think you have to almost anti-sell because, like, the failure mode is hiring the wrong person having to fire him.

It's so much more disruptive to bring somebody in that doesn't work out. You really want the right person. There was an anecdote that Steve Mullaney with the CEO I hired afterwards. He's like, you know, when we were doing this dating dance, here's what I would do, Martin. I would basically keep asking you the same questions. And then I would pretend that I didn't understand. And I just wanted to see if you get frustrated with me. Oh, how funny.

Yeah, yeah. So he's like, I was testing. I thought he's looking for alignment. but he's just seeing your reaction. I mean, I think there's a general rule in startups that's just so useful to implement, whether it's creating a board or hiring people, it's like, you should do it with the bad times in mind, not the good times. You normally hire based on the good times.

You're like, oh, I want to have the best board ever and this and that, but it's really the bad times when these things kick in. So any parting thoughts for those out there who are negotiating with themselves or others, whether to be the CEO or to bring in an outside CEO? Any parting piece of advice? I think you have to just be super honest with yourself and, like, what motivates you? that level of honesty with yourself of what do I want to do and why do I want to do it

is super critical because I think if you can answer that then it becomes pretty obvious of like hey if you really do get energy from being CEO you really are motivated by that growth and that sort of challenge then maybe it's right for you to do that but if you have a different, not a worse set of motivations right? Like in our case I think it was a different set of motivation

which is like we love the products, we want to see the technology to succeed and the best way for that to happen was for us not to lead the company. If there's one piece of advice I'd give it's don't make a decision out of fear. And that can operate on both sides. I think I brought in an interim CEO out of fear as opposed to actually stepping up. And I think a lot of people don't bring in a CEO out of fear.

And I think fear more than anything else clouds this decision. It's very clearly an insecurity fear issue. And that's a total failure mode. Fear of loss of control. Yeah, exactly. And I made this mistake myself, brought in somebody because you were afraid that you couldn't do it. And I really think that this is an abdication

of your responsibility as a founder. And so I just step aside from the fear, make the right decision. Well, Martine, Armand, thank you for joining this episode of the A6NC podcast. Thank you. Thanks so much.