Overview
In this presentation, Dave Boyce talks about how to build processes around selling a product to build revenue streams. He warns that a ‘revenue at all costs’ mentality can threaten stackable revenue and gives tactics to create a stackable revenue stream. Dave talks about how consistency in sales approaches will allow a company to support higher volumes of customers.
Speaker
Dave Boyce is the Produce-Led Growth Practice Lead at Winning by Design. He is also an MBA Program adjunct professor at Brigham Young University. Dave is a thought leader in the product-led growth space and has decades of experience putting product-led growth into practice.
Quotes
“Sometimes we get in trouble because we’re creative. And then the company has to support our creativity. Think about what happens has to happen in accounting and finance and billing think about what has to happen in our systems to keep track of all of those twists and turns in the contracts are Think of what we’ve done to win this customer versus what we’ve done to one win that other customer versus what we’ve done to retain this other customer.”
Key Points
- Product-Led growth is an important base layer for revenue
- Other revenue streams will build well atop a durable base layer
- A fine-tuned, easy to use product is the most stackable.
Transcript
Hello RevTech community. What an amazing lineup. There has been this event, I hope that you’ve been able to catch some great sessions. And I hope that you’re able to catch some more after mine. But I want to dive into the topic of my session because I’m excited about it.
We are in the middle of a revolution. It is a revolution that not many people know about. And because Fortune favors the brave and when we step into the unknown, we can create order out of chaos. We actually have an opportunity as people who know about this revolution to be the ones who can define the future. And this revolution is around a concept that’s super popular in Silicon Valley and almost nowhere else called product led growth.
When I moved from Boston to Silicon Valley in 2010, I had already helped build a SaaS company and sell it to Oracle and then ran a product line for Oracle, a global product line. For four and a half years. I thought I knew a little something about cloud computing.
Didn’t know the Silicon Valley Way of cloud computing. When I showed up in Silicon Valley, I felt like I was starting over Silicon Valley at the time in 2010. There was lots of talk about growth hacking, building viral loops. Around consumer games around social networks. And some people had taken those growth hack hacking techniques, and we’re applying it to a new category and b2b software that included Basecamp, Dropbox, Yammer, Zendesk, that was about it. That was about it. And people didn’t really want to say they were doing growth hacking because that sounded somehow a little dirty or a little b2c or a little slimy.
Little kind of tricky.
In truth, figuring out how to get E to B buyers to buy something that could fit on their credit card and that they could expense for maybe departmental adoption, and then could expand inside of the company was a new way for b2b software to be sold. Now today.
Product lead growth has a name and it has been defined to the extent where we have books on your books.
And classes are being taught. I teach a class on product led growth in the MBA program at Brigham Young University cases. have been written and fortunes have been made on the concept of product lead growth. But we still have pieces of the product lead growth equation that haven’t been figured out and we have vast areas of the software world where product lead growth has not yet made its mark.
One of the difficulties of product lead growth is what happens when you get to a point where you need to have a salesperson involved where you’re selling the enterprise class customers who need enterprise class motions. In order to adopt it. What happens? Well, to address that, and to work on this kind of industrial strength version of product led growth, we’ve introduced this concept of stackable revenue, and we believe there is a right way to build a software company today.
I know that’s a little controversial, and not everyone can do it exactly like I’m going to show you in this presentation. But we can do parts of it and that principles remain the same. So product-like growth is, according to West Bush, who wrote one of the books on product-led growth, a go to market strategy that relies on your product being the main vehicle to acquire.
Where we think about free demos and free trials and freemium models debate.
So no humans in the room, nobody helping me, nobody teaching me how to use Slack. Nobody taught me how to use teams that would teach me how to use Zoom or Dropbox.
Because it activates me on its own and retains customers. So we believe that winning by design the future of software belongs to product like growth, however, not an isolation, not an isolation. There are stages of growth that are applicable for different types of revenue generation. We’re going to talk about the context of this concept of stackable revenue. So you know, often when I talk to a young founder who has just raised their first round of venture capital, I say okay, now you’ve just bought some time on the y axis, let’s say two years. What do you want to accomplish on the sorry, you bought some time on the x axis? What do you want to accomplish on the Y axis? And they often say well, arr Of course, revenue, okay.
Any arr? Well, I want $2 million in any $2 million of ARR. A million dollars of contracted error, you know, is this a trick question? And then I say, Well, look, I can think of $2 million of error that wouldn’t be an investable company. For instance, customers $1 million each, not an investable company in my mind. Now 20 customers cost $100,000 each. Now I’m starting to believe that you’ve got a repeatable motion down 100 customers $10,000 each. Now I believe that you’ve built the machine. I actually don’t think any $2 million or any growth is necessarily the right growth today. We’re an environment where if any of your competitors can deliver even a fraction of the functionality that you deliver, but do it through a product lead growth motion, and you are not able to do that. Laws of Physics will prevail.
Their near zero cost of acquisition will allow them to run faster and learn faster than you. You will lose. So what does that look like in the real world?
Let’s consider what we’ll call a stackable unit. And that stackable unit will consistently customer and everything that we did to acquire the customer, all the economics of having that customer and everything that we have to do to retain the customer, all of that combined into one stackable unit. Now let’s consider the two stacks on this page.
If I can get it to advance
There we go.
Now consider the two stacks on this page. Which of these will stack higher the one on the right right. The one on the right has consistent edges. I know where those edges are. I know what their shapes are. I can predict them and I can stack them. I can stack that to the moon, the one on the left. Because of its inconsistent edges and shapes it will only go so high before it starts collapsing under its own weight.
If we were to define what makes these edges consistent for the sake of this analogy, let’s take the horizontal edges and call those our process. Everything we had to do to get the customer, everything we do to keep the customer, everything we do to renew and expand the customer. It’s our process. Now ideally, we would want our process to be consistent customer to customer to customer. But why would we ever choose the example on the right where for this customer I pursue this process for that customer I proceed that process for this other customer I proceed this other process and yet really good quality.
Humans and teams do the right hand side of this chart every single day. Why? Because we’re looking for revenue. It’s a revenue at all cost model. And if we think revenue at all cost is the game we will bring our best creativity to the game. We will figure out what we will not do to win, that this customer will say things like that, what we will not do to keep this customer and we’ll go all out and bring all of our creativity to the game. The problem is and here’s an example. Hey, are you proud to do this? Well, the question never really thought about that. It wasn’t really designed to do that. But now that you mentioned I think it could be that yes, my product can do that. That.
Okay, so now I just made a promise to the customer.
The product would support a certain use case that it wasn’t designed for. We haven’t thought about all of the implications of that the product engineering team didn’t think about that. So and the support team certainly didn’t think about that because we just invented it on the fly. So now the entire company is going to have to support a use case that the product actually wasn’t designed to support but I got the contract. That’s an example of where well intentioned humans trying to hit a quota trying to get revenue at all costs could create the situation on the right. Now let’s think about the vertical lines as our unit economics. What are unit economics? It’s all the money I spent to acquire a customer, my CAC or customer acquisition cost, offset against all the revenue that I’m going to get from that customer over that customer’s life cycle, the ART of the costs to serve that customer. If all of my net lifetime value of the customer is more than what it costs for me to get the customer then I’m in the money in this fictitious case on my left hand value is 1.6 times my cost to acquire I really would like to be three times my cost to acquire but if I can spend $1 To make 1.6 dollars or $2 or $3 and I’m in the money How can I possibly mess that up? That’s That’s how SAS is built right? Yes. And sometimes creativity and revenue at all costs can mess that up to consider this.
If you buy today, I want to throw in an additional product that you don’t have to pay for in year one, you’ll only start paying for it in year two. In fact, it’s not on the price list, but I’m going to give you an all you can eat license for this first year. Or you know what we’ll do? We’ll make this I’m going to make this really attractive, you pre-buy capacity that you will grow into over the next few years and I’ll give you the lower per unit price. In years, one, two and three, as long as you commit to that ramp schedule. Have you heard any of these things? We do this a lot. Revenue at all costs.
Sometimes we get in trouble because we’re creative. And then the company has to support our creativity. Think about what happens has to happen in accounting and finance and billing think about what has to happen in our systems to keep track of all of those twists and turns in the contracts are Think of what we’ve done to win this customer versus what we’ve done to one win that other customer versus what we’ve done to retain this other customer. Not only do our processes become variable, but our economics become variable and very hard to manage.
I want my teams to do 100% of the time what works 70% of the time, quote is attributed to Brian perks from zoom info. I think it’s a brilliant quote. I want to let it sink in for a minute.
What my teams do 100% of the time, but works 70% of the time with the alternative to that be I want my teams to win 100% of their deals.
Okay, well if I want to win 100% of their deals then I will go to the ends of the earth to win that very last deal. I will chase that customer all the way down. I will color outside the lines I will get creative in my financing. And my deal structure in my feature promises whatever I have to do because you told me I have to win one number. So the deals right?
We want a different mindset. I want to figure out something that I can do every single time the same way and realize that it’s only going to win a certain percentage of the deals. If I can get these percentages to work and golden if I can do the same thing 100% of time and win 7% of deals and let the other 30% of the deals walk because they’re not a perfect fit and move on to someone else who is a perfect fit. I’m going to be gold that’s hard to figure out. That’s part of my product market fit and going to market fit iterations early on in a company but that is my goal. So enter product lead growth.
Product lead growth, as we mentioned, is a go to market strategy that relies on your product as the main vehicle to acquire, activate and retain customers. This means without a human in the room to assist.
Need to make sure that my customer can find my product and learn how to activate it, learn how to use the product and achieve impact with that product. The job that she came to try to accomplish is she’s now accomplishing with my product, such that she obtained obtains the impact she’s looking for and then retains terms of her ongoing usage, upgrades pays renews expanse, my product has to be able to do that to product lead growth is a laboratory where that is all figured out. It is an unrelenting laboratory, a refinery if you will, where he got the customers to show up but then they didn’t activate Okay, well then I need to fix something but they didn’t really understand how to do it. Okay then I need to fix something. Well, I understood how to do it but then it was too hard. Okay, then I need to fix something well, it wasn’t too hard to get started but they couldn’t find that they didn’t achieve their values in okay, then I need to tweak something.
These little tweaks to the product, the essence of what growth teams do in a product lead to a growth environment because there’s no other alternative. I don’t have human hand holding. If you think about a flywheel.
In a machine a flywheel is a weighted wheel that once spinning is very hard to stop. The first turn of that flywheel is very hard to get going. You know I need to make sure that the customer understands how to use the how to get started on the product, then to use the product and to get value out of the product then to come back to the product and to use it again then to get impact, then measure that impact and to share that impact with their peers. I have to work on every single little piece of that machine. And as that flywheel starts going, it’s hard those first turns are really hard to get going. But once the flag was going because it’s weighted it’s very hard to stop. I get $10,000 then 20,030 in monthly recurring revenue, and I get 100 then 203 100 And I get a million then 2 million and 3 million and that wheel is going on. It’s extremely hard to stop. This is why if anyone in your space has gotten their flywheel to go using product lead growth, and you’re using human tactics, human led growth and you haven’t gotten product lead growth to work, you’re going to want to get beat. It’s also why if you can get your flywheel going no incumbent and no new entrant will be able to beat you. This is why the future of software belongs to product growth and it’s why we say in this concept of stackable revenue, that plg is the most stackable base layer. All of those processes are programmed into the product. All the economics are programmed right into the product. There’s no variability on those edges, and the flywheel is unstoppable. Once I have that going, it’s very easy to add on top of that, inside sales. It’s all the sales motions. It’s the most programmable. I can feed inside sales, mostly within them marketing, potentially with some outbound with some outbound motions as well, but inside sales skills very quickly, the unit economics are good. It leverages everything that I learned in product lead growth. I’m not making big promises. The deals are reasonably sized and the sales cycles are reasonable or reasonable length and I and that is almost like second best to a flywheel. Once I have that going, it becomes easy to add Field Sales, enterprise sales on top icing on top. These are the largest deals they have the best retention, but also they have the most promises and strings attached. If I were to start with that, if that were my base layer, then I would have a variable stack on the bottom with every deal a different shape, a different size, different different characteristics, different deal terms, different promises, different features, different use cases. And that is very hard to stack on top of a stable base. It is icing on the top and it is a good thing to have. This is what many of these companies that we’ve been watching, zoom and Dropbox and slack and Atlassian. We’ve watched them systematically build from the bottom up product lead growth followed by inside sales, followed by enterprise sales.
So what does that mean for me? Well, if you’re in sales and marketing, finance, sales and marketing, I want to look for companies that have built a solid base revenue layer. It may sound good if I carry a quota. If a team is saying hey, look, come here and you can know sales is in charge. We can sell anything we want. We can basically make it up on the fly. That may sound good and we’re able to hit a quota for one year or two. But the company is not healthy. That’s going to be a hard company to build a career on. Look for a different company. If you’re in product or engineering. That’s where we want to develop pod skills. We’re in the middle of a pod revolution. The future of software belongs to product lead growth. I want to join a company where the product is the foundation where I can learn those skills. Were the things that we’re talking about here are just common language common nomenclature around the hallways. If I’m a SAS executive, and I have capital to spend, I could either fine tune the product so it’s extraordinarily easy to use, which implies it’s not extraordinarily easy. To use now but I could get it there.
He built more features to meet the growing demands of my customers. Or see scale my company by adding additional quota carrying reps. If that is my choice.
Do seven days out of seven. If the product is not yet so extraordinarily easy to use, then a customer can find it activated on it. achieve impact with it, renew on it and expand with it. If it’s not that easy to use yet, do not pass go and do not collect $200 . We don’t want to do B that’s just going to make it more complicated. We don’t want to see it. That’s just going to load more expectations into it. I need to get it right first and if I’m a SAS investor, I need to realize not all revenue, and in more importantly not all revenue growth is equal. So it is no longer true that a triple triple double double is automatically a company that I want to invest in. No, I need to invest. I need to investigate the quality of that revenue. How is it stacked? I want revenue with a stable base layer and fundamentals in place that are going to allow me to hyper scale.
Just like the companies that we’ve been talking about, but don’t take my word for it. This formula product lead growth plus inbound marketing add into that outbound ABM and sales. That is a stack that is stackable revenue that you can scale infinitely. It is the formula that’s been followed in Silicon Valley by all the companies that we love to watch.
GitLab Canva DocuSign, Slack Atlassian Dropbox these are all companies who started with product lead growth.
Once they had the fundamentals of that go to that product market fit and go to market fit in place, then added inside sales, then added enterprise sales. Fundamentally, mathematics ends up producing exponential growth, financial markets reward that and a small number of humans on the planet including hopefully you at this point and me understand how to get there. It takes a little more time in the beginning. I have to be patient, but the flywheel is unstoppable. It is very hard to stop at once I get it rolling, and it creates extraordinarily scalable companies with stackable revenue. I wish you all the very best in building your own success and enjoy the rest of this conference and we’ll see you out there