Phil Fernandez, chairman and CEO of Marketo, sits down with Jason Lemkin to talk about what made his company so successful. They touch on market dominance, dealing with the competition and the difference between $10 million and $500 million in ARR.
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In a nutshell:
- Don’t ignore upsells and retention just because signing new customers is more exciting.
- If you have a strong thesis and roadmap, you can afford to ignore your competitors’ day-to-day shifts.
- Be receptive when a customer shows you a new use case. It may end up being your company’s next chapter.
Q: How did you differentiate yourself from competitors? What’s the “secret sauce?”
A: They came to the market doing their own thing. Rather than benchmarking off the competition, they just did what they thought was the right soluiton.
Q: What’s your advice for founders when a competitor makes a good move?
A: The competition comes from innovation, which is a good thing. But don’t be reactive – instead, drive your own innovations forward.
Q: What if the competition is outgrowing you?
A: You need a strategic thesis about what you’re doing. You don’t need to be the fastest-growing company all the time if you have a vision and roadmap. That said, if you’re in a first-mover situation, you do need to grow quickly.
Q: How do you think about market dominance?
A: ERP is a massive market with tons of players. The benchmark for success keeps moving – hitting $100 million in revenue, then $500 million, then $1 billion. He keeps himself in line by having a solid strategy that the board and the markets respond positively to.
Q: What’s your average deal size?
A: Around $50,000, with seven-figure deals at the high end.
Q: What’s changed between $10, $100 and $500 million in ARR?
A: You have to be vigilant about spotting mistakes before customers do. You also have to fight product creep – the temptation to keep building new things is strong, but at some point you have to double down on what you’re good at.
Q: How do you know when it’s time to change out your team?
A: You should hire continuous learners. That way, you won’t have people who are boxed into being a “$1-20 million guy” and unable to adapt to a changing company.
Q: When should you bring in someone to implement a scaling process?
A: Probably not before a few hundred employees. At Marketo, there was a bit of a culture shift – the organization felt that it was still young and agile, and having a big company come in and try to impose a scaling process felt unnatural.
Q: Have you had to reinvent Marketo in its decade-long lifespan?
A: There have been two reinventions. The first came after its Series A, when they pivoted away from SEO. The product was selling, but customers churned way too fast. The second came when a Clorox director used Marketo as a marketing product, not as a lead management tool. That use case lead to a huge repositioning and helped it reach pre-nicorn status.
Q: How much time do you spend with customers and prospects? How has that changed?
A: Fernandez typically spends around 25-30% of his time with customers. But if he didn’t have to deal with investors, he’d like to spend 60%.
Q: What’s the right ratio of prospects to existing customers?
A: New customer acquisitions are like cocaine – it can be addictive and feels like a growth driver. But you need to focus on renewal and upsell metrics from day one. It’s less sexy, but it’s no less vital.