BlackLine and LOOMIA

You're listening to Zero to IPO. I'm Joshua Davis, the co-founder of Epic Magazine.

And I'm Frederic Kerrest, Chief Operating Officer and co-founder of Okta. As you know, we're dealing with a global pandemic, and we're excited to bring you more episodes of Zero to IPO, but we had to figure out how to record in isolation.

So if it sounds like we're all in different rooms, it's because we are. Now, let's get on with our show. Today we're joined by two incredible guests, Therese Tucker, who's the CEO and founder of BlackLine and Madison Maxey, the CEO and founder of LOOMIA. And we've got a whole lot to talk about. Therese, you founded BlackLine in the early 2000s. And for our audience who doesn't know BlackLine, you should—it is a cloud based software platform that delivers accounting and finance functionality to companies. It is a publicly traded company and has over 1,000 employees. And as of today, which is mid-April, is currently valued at over $3 billion. So we're not messing around is what I'm saying. And then our other guest, Maddy is the CEO and founder of LOOMIA, which makes a very interesting series of products that are classified as e-textiles, which are soft circuit systems that can heat fabrics or control fabrics and all sorts of innovative, interesting ways. For instance, imagine a car seat that could sense your dropping body temperature, and then automatically start to warm you up instead of you having to mess around with the controls.

Josh, your introduction was great, but you're talking about car seats that heat up. How often is your body temperature really dropping? How about ski jackets? I know that Maddy makes ski jackets that heat up, talk about something valuable, go outside-

I'm in a car right now.

Why do car seat?

I'm in a car right now, I would like a car seat.

You don't look very cold at all.

But maybe it could ventilate. Why does this have to go one way?

It could. I'm just saying why not use that example that everyone will understand? Like a ski jacket that when you're cold warms you up.

I think car seats are better.

Anyway, sorry to interrupt. It just seems so obvious, unbelievable.

Thank you for the kind introduction. And I was so excited to speak with Therese and Freddie today because you both have big B2B businesses. And I find that B2B sales is something that can be really hard to hire for and really hard to learn. A lot of my background is on the product side so we can make prototypes, we can get things out there, we can handle inbound. But when it comes to having a really strong sales strategy and including hiring a sales force, it's something that's been tricky over time. So I wanted to have this conversation to get as much advice as possible about how you went about finding your first sales hires, what you looked for, and any challenges you had along the way.

I love it. Awesome. This is my favorite kind of conversation, I've got so many ideas. Maddy, let me ask you a question, so maybe can you describe in a minute so that we can maybe give you also some specific advice in your case, so how many customers do you have today? What does the enterprise sales cycle look like? How long does it take? What's the average customer take? Do you have any sales reps? Can you paint a little bit of the picture because maybe then we could actually give you some specific, actionable things out of this.

So our team is very small, and we're four people. And we just brought on two people, one to help coach us in sales, and another person to help execute in sales. But there's not somebody who's full time, we wanted to kind of test and see what we liked and to get a handle of this situation. We have about six customers or so, we generally sell to large businesses. And especially because the product that we make is very hardware focused, it was around the beginning of last year when we were able to get to market in a meaningful way. When we were able to have samples, now were like, "This is what you could get." Versus like, "Imagine what you could get." Which is a really different process.

So last year we signed on a few fortune 1000 companies, this year we're hoping to bring on a few more. But as you mentioned, Ezgia who's our CTO, her and I do most of the sales calls. And at some point for these really high touch sales processes, it really doesn't scale very well. So I think that in the past we felt a little burned by certain sales hires. And so we're trying to think, how do we restrategize and think about this differently in order to be able to hire better? Because I think for the company to grow, we definitely have to have someone.

Well, let's turn to our expert Therese Tucker, what's your advice to Maddy?

Maddy, I like you don't come from a sales background. And I definitely made plenty of mistakes in the early days. And I have to tell you that the first really capable sales leader that I hired, made the difference between the company succeeding and failing. But, before I found him, I definitely went through a number of different attempts at trying to find the right people. And it's difficult because people that are in sales can talk a good game, right? Just about all of them. And that may or may not translate in terms of actual performance. Now, with that, you have to think about the kind of sales culture that you want. I did not want a sales culture like some of the other software companies that I'd worked at.

There are certain software companies that have reputations for salespeople that basically are just brawlers. They grab the prospect and they throw them on the ground and stomp on them until they get a deal. I've had a few of those. Again, that's not something that necessarily comes through in an interview because everybody's on their best behavior in an interview. So you're going to want to look for proven success, you're going to want to look for culture alignment in terms of the culture that you're setting for your company. For your early salespeople I would suggest that you do options. A really good salesperson can work anywhere. They really can, they've got all the options in the world, they can go anywhere. And so why would they come to a small company that may or may not succeed in a new market? So what is the carrot to get somebody who's really good? And typically that would be stock options that gives them tremendous upside. Freddie, want to add to that?

One thing I would say that was very hard for us when we started was if you never hired an awesome sales leader, you don't know what they look like. And so you might be interviewing these people and they might seem great, but you actually don't know necessarily what the characteristics are that you're looking for. Things change, like Therese, we spent a while building Okta at this point we have hundreds of quota carrying account executives, it's a very different program. But when we started hiring our first sales leaders, I actually found that one of the most valuable things was getting outside help in those interviews. And that's actually something that I have now been asked a number of times with the enterprise software founders who I help. They'll say, "Hey, would you mind being the last interview for our first vice president of sales that I'm going to do?" And I say, "Yeah, sure, of course." Because now at this point I've done it a hundred times.

When you're looking for these kinds of folks. It's good to think about what the time horizon is that you want. We're just wrapping up our 11th year at Okta and of the first 10 employees, one of those first 10 is still with us, the other nine are no longer with us for various reasons. They left, or they went to a different job, or they moved. Now the employee number four, Brian Hanson, our Vice President of Design has gone from an individual contributor to running a giant group. There are definitely people who are able to do that in the lifetime of a company. We were two people, he was employee number four, today we have thousands of employees around the world. So you also want to think about, "Hey, this is not necessarily the sales leader that I'm looking to take the company public. This is the sales leader who I need to be successful for the 24 months."

My first really successful sales leader was an incredible coach. When he had a salesperson that was struggling, he would essentially get alongside, do every sales call, take them under wing, help them amazingly, unbelievably great. Until, you realize that he essentially ignored everybody else while he was coaching this single person, and that approach as you got bigger is not scalable. So different sales leaders for different times, you tend to outgrow certain sets of capabilities over time. Really important to recognize that. Then the one other thing I wanted to touch on is prior to hiring a sales leader, you typically hire a sales person. I started with one sales person and he was a guy who spoke a great game. Here's the struggle, sales takes time. So somebody has to come in, they have to learn what they're doing, they have to develop a pitch, they have to do reach outs, they have to start cold calling, they've got to find prospects, then they've got to get them through a sales process.

So in that entire time, you're paying them this very large base salary. And so it's difficult to evaluate if you're getting your money's worth for the first six to nine months. So the first sales person that I hired basically talked a great game, did nothing, turned out was horribly rude to a number of prospects. I paid him 120,000 for almost a year. And I then fired him, he turned around and sued the company for age discrimination. He never sold a thing. And in California most employees have more rights than employers. So a couple of things that I wish that I had done beforehand, I wish that I'd had an employment contract in place. I wish that I had potentially claw-back, rather than paying an enormous base salary, maybe you pay a small base salary and then you pay on future commissions. I wish that I had done a better job of documenting my expectations up-front in terms of milestones.

Freddie, do you have any thoughts on that?

One thing about sales that I think is very important is it's not so much what you want to sell, it's what the other person wants to buy. So there's two kinds of salespeople, there's what I like to call the alligator salesperson and the fennec fox salesperson. If you don't know what a fennec fox is, you can Google it, it has a very small mouth and really large ears. And as we know, the alligator has a very big mouth and very small ears.

So if you go on in there and you just start talking a lot you talk, talk, talk, talk, talk, talk, you're actually not going to hear what the potential buyer wants to tell you. But if you go in there and you have a small mouth and big ears, you can do a lot of active listening and you can say, "Oh, what I have to sell is this, but they're actually looking for something that's going to solve a slightly different problem. I can help them with that, so let me explain to them how I can help them with that problem." As opposed to coming in and saying, "We solved these three things." And they say, "Well, we don't have those three problems." And you're like, "Okay, well now I'm kind of stuck."

I hear something that I find a little tricky in this puzzle of finding a really good salesperson. Is that I've heard things like when you find the right person, it can really improve your business, it makes a big difference on the bottom line. But somebody who's really talented, as you said why do they want to work with us? Not that I don't think we're great, but we can't offer them the best salary, we can't offer them the most prestige, so what exactly are they getting? And options are a great way to go. But I was wondering, Therese, what was your experience like with hiring that sales leader who you said changed the trajectory of the company? How did you find them? And when did you know that it was a good fit?

My first sales leader actually came out of Oracle and he was an accountant by training. He actually did a presentation for us at a trade show. And afterwards I approached him and said, "You're not a big company guy, you should come work for BlackLine." He took about three months to make a decision. In fact, we used to laugh about it, he would come and sit in our offices and just watch everything. That is not a normal interview process, I didn't know him well, he didn't know us, we were learning about each other. We essentially had him camp out there for a couple of months, and he started helping with things. So by the time that he ultimately joined the company, I had a ton of confidence that he could actually perform. And he's the reason that the company was successful.

Wow. From what point from when you hired him were you starting to see a change in the bottom line for your company?

Actually the scary thing that he did when I officially hired him, was he went out the following week and hired three salespeople at 120,000 a year. And I almost died on the spot because we were still bootstrapped back then. He told me that, and I know my face probably went white, and he was like, "But wait, that's what you hired me for." And I'm like, "I know, I just wasn't quite ready from a wallet perspective to handle." And he's like, "What should I do?" And I'm like, "All right, let's do it. I'll make it work on my end."

Then he hired very well, two of those salespeople are still at BlackLine today. One of them ended up moving back to his native country and everything else, and we still have a great relationship with him. So he hired extraordinarily well, it was an act of faith on my part to not just die on the spot when he hired three people. I thought in a month he would hire one. And like two months later, three months later after they close some deals, he'd hire another one. No, he went all out immediately. And it was a great decision, it just cost me about three months worth of sleep.

Therese, how did you know to do that? This is why you're in the position you're in. I don't think I would make that decision. I would be like, "No, let's go slow, we're a small company, we're going to burn through our resources."

One of the things that I have done well throughout my career, is that I know what I don't know. I come from a technology background, I don't know sales, I'm not good at marketing. So if you hire people who you confidently believe are better in their expert skills than you are, you've got to trust them. And that can be very scary. If you don't put your confidence in them and let them make the decision, then ultimately you're going to undermine them, and they're going to leave. So would have done that? My God, no. But I said, "This is my sales leader, I'm going to trust his skills. Let's do it."

A couple of things there. So very tactically, I actually always recommend, it's funny enough, that entrepreneurs hire their first set of sales cohorts in groups of three. That you should always hire three salespeople, not just one. And the reason is because people are individuals, so there's going to be some individuality about the person. So if you hire just one person, it sounds like Therese made the perfect hire. But in general, if you don't make that first perfect hire, you want to hire groups of three. And you want to do that because first of all, you're going to get three different people. So you're going to learn a little bit as you go, because the whole thing is a learning process about what the right approach to sales is, and one person does it a little bit differently than the other, and one has a different philosophy than the other, and one has a different way of building relationships with then the other one does. And so that's the first thing.

The second thing is, sometimes you are going to end up with like the unfortunate situation Therese was telling us about with the salesperson who didn't sell anything for the whole year and left. Well, if you have three people there and that's only happening to one, you know that actually the issue is the person not your sales process, or your product, or anything else. And then the final thing is, salespeople are competitive. I always love to find ex-NCAA athletes are great salespeople. Why? Because they have a competitive nature in them because they try to be a top athlete in a top performing approach to whatever they were doing in their formative years. And so if you put three of them together, they're going to compete to see who is the number one, they all want to be the number one.

Therese she gives options to the best performing sales, but they all want the options at the end of the year. So that's why there is a classic thing that is done in sales, that we do have sales club where you send the top performing account executives every year, go to a nice destination for three days. And their names are on a whiteboard so that everyone knows who they are. And then the top performing sales person, you bring them on stage and you give them a Rolex or something where everyone says, "Oh, I want to be the top performing salesperson. I want to get the Rolex next year." And these are all ideas, and you see them in movies like Glengarry Glen Ross. It's reality, I've seen it for the last 18 years since my first year at salesforce.com and it works. And so you always hire salespeople in little cohorts, so they can really be competitive and they all want to be number one on the whiteboard.

Freddie, that is the best advice. And by the way, when I brought in my president, he came from NetSuite, we now have club within club. We have the super elite club where they do curated experiences in different locales around the world for only the top 10.

So it's like the top 100%, Therese go to sales club, but the people who do 150% of their quota go to this super president's club, is that right?

Yes, that's right.

And how does that work on the rest of the sales force? I'm guessing people want to be in that.

Desperately.

Desperately.

So for example, this year's club within club was a curated experience in Japan, which is on hold by the way, around the Olympics and Sumo wrestling and everything else. When they did the sales kickoff meeting, they set up their own dojo up at the front of the room with people serving saki and everything else. And only the club within the club members were able to sit there. And the rest of the salespeople were just dying, they wanted that so badly. The competitive thing, is real Maddy. And we have also had a number of ex-athletes, ex-football players, pro football players, college athletes, we had one Survivor contestant. The competitive thing is enormous. And I had not heard the rule of three before, if I ever start another company, Freddie, I will absolutely do it that way. That's beautiful.

I love it. Tell me how it goes. What I would also say is, there's a big difference between when you're early on, as in Maddy's case here and really doing a lot of discovery sales, which are founder led, and when you really start to ramp the program up and getting five, 10 and 25 salespeople, and then you want a machine, and you're dumping more gas on the fuel and all these kinds of things. So what we did which in hindsight, probably one of the better ideas I had earlier on in the company, I had plenty of bad ideas that would take up many, many podcasts. But one of the ones that I happened to get lucky enough to come up with was, when we had our first set of salespeople that were beyond founder led sales, beyond just me and Todd going out there.

When we hired our first couple of sales development reps, so that we could start doing more leads. And then we hired our first couple inside salespeople who would sit really close to us, so that we could do that active learning. I actually didn't even do annual comp plans, I did, I think quarterly or six month comp plans and they were very simple ones. And basically it was like, hey, you had a totally reasonable base salary, you had options because you want to incent these people who are a little bit more risk taking, and who are going to buy into the vision and the culture. But then for example, at first it was how many demos can you get? And I'm not going to give you a quota of closed business because there's not going to be any closed business. But what we really need is we need to get in front of a hundred different potential buyers and just get the feedback.

So your job is just to go find people who will listen to the demos. And I'll sit on the demos, and the head of product will sit on the demos so we can just listen and hear. And I'll just pay you for the number of demos. Then we'll move you in the next six months to the number of proof of concepts. People who are actually going from demo and saying, "Huh, I'm interested in seeing how this might actually work and implement for my business." I'll pay you on the number of proof of concepts. And then you go to, "Okay, now I'm going to pay you on the number of proof of concepts plus the first closed sales." So that if you have, because in enterprise sales, as Therese said earlier very wisely, it takes a while to get the program going. You have got to find the people, you have got to cultivate. You have to build the product. Especially in a hardware business like yours, it's not like you snap your fingers and a week later it's like there's a new rev of the product. It takes a while to build it.

You don't want a sales person to "starved" meaning sell nothing for that first year. And they get totally demoralized, and they're not doing anything productive, and there's bad energy with them coming into the office, and they're complaining. What you want is you want to find a way where they're still pushing the envelope forward, they're experiencing success, but it's also driving an agenda for the company. So for me, it was just getting a whole bunch of feedback loop in demos, and then proof of concepts, and then slowly implementation. Whatever that is for you, I think there's a lot of different ways of slicing it beyond just what's your close sales number?

That's really helpful. It really helps to piece things out much better than being like, "Okay, you just got here, now go and sell something." And if you don't sell something and however much time lead into your job. And I think on both ends, it allows us to have a little bit more nuance. And so that's something I'll remember.

No, that's not for everyone. You are going to find salespeople who are like, no, no, no, no, what's my quota? What's my number of leads? What's my territory? What's my patch? What's my accounts? Where's the playbook? Where's the... That's not the person that you need today. That's probably the person that Therese needs to hire in one of our regions. So for you, you really need someone who's getting be more entrepreneurial and with you through that learning process.

Great. And now, from your advice as well, I have an idea of what could happen in three years or four years, maybe. What you should actually be doing when you're hiring leadership or hiring individuals to go under that leadership. And something that's not as related on the sales side, but that I was wondering about was that timeline to feel like it's time to scale up. I think for us, because we spend so much time in product development, I don't know for the that, but I also know that for Therese, it was like 12 years before you took on funding. And once you take on that funding, you know it's time to scale up. Like if you're raising a serious A, you have got to scale. But at what point did you decide it was time to scale up Therese since you were taking a different strategy?

Well, it's interesting. I did take on outside capital at the end of 2013. But we thought about doing it probably three or four or five times prior to that, starting in around 2006. Now what we ended up finding is that when we would get term sheets, we didn't like them. We either didn't like the valuation that they were putting on the company, or we did not like the complete lack of control. It would be like, all right, we get complete control over every decision that you make. Or we found somebody that we loved, but then the company started generating all kinds of cash so we didn't go with that one. So there were different reasons over the years, but we were exploring outside funding for at least six, seven years before we actually took it.

I don't think that was a bad thing because we learned about the different kinds of funding that's available, the different types of people. We just felt good about it when we finally did it. And of course the other added benefit was we ended up retaining a lot of ownership, and made a lot more money in the long term by delaying that decision. So it was not a bad longterm decision either.

At what point did you say to yourself with BlackLine like, "Hey, there could be a really big business here." Do you feel like there was a moment when you felt it was just really working?

I believed that early on. I am still appalled today that we only have just over 3,000 customers, because I think that all accounting departments ought to be using BlackLine. And so, yeah, I've thought that it's more that markets themselves take time to mature. And back to your scaling question, a market may not be ready no matter how much money you throw at it. And that's just something that you've got to get a sense for. We have a very conservative buyer in accountants and so it takes a market shift in order to scale sometimes.

Absolutely

Freddie any thoughts to share on this with Maddy?

Well, we had a very different approach. We knew that to build on enterprise software infrastructure platform that was going to help people adopt more cloud computing, was going to be something that required financing. So we raised over the course of seven years, I think we did seven rounds of financing that totaled about $230 million from some very good venture capitalist investors who certainly... For us was it was a huge difference, not only the capital, but also the advice. The company would not be where it is today without the support, and guidance, and advice and feedback that we got. Which wasn't always nice, because their job is to help you create shareholder value, it's not about being friends. But certainly we got a lot of value, not just in the capital, which obviously was key to grow the business, but also in the guidance and advice we got from some of our board members. Ben Horowitz from Andreessen Horowitz, who's still on our board Aneel Bhusri from Workday and Greylock, Pat Grady from Sequoia capital. I saw Therese, if I'm not mistaken, you ended up ultimately taking financing from Silverlake, is that not right?

I did. And I had such a great experience with private equity. The amount of expertise that they brought. They did, just like Freddie was saying, he'll do interviews for people. They helped us network, they did interviews, they essentially where my product and CFO people until I was able to hire, I had a tremendous experience and I still have a couple of them on my board. So I had just a fabulous experience and not everybody does, but it was the best. Couldn't have done it without them.

That's great. I can only imagine what the three or five term sheets that you got that you passed on are feeling like today.

I've had a couple of those guys come back to me and say, "Dang it, we could have done so... I don't know what we were thinking and that we gave you such a low offer."

HindsighT is 2020, isn't it?

I have a question about, kind of a general hiring thing. This is almost a colloquial rule of thumb that you hear about hiring which is, you want to hire slowly and fire fast. Which I have never been able to do, I'm no good at it. Is that not true or the correct approach when it comes to sales people? Do you need to not react immediately and hold back your reaction?

I like what Freddie articulated so well which is, if you set up interim milestones for people that are achievable, that are not necessarily tied to closed deals, then the excuses wear thin very quickly. Is dumb, don't do that. Fire fast because somebody's not performing for an interim goal that is very achievable and very reasonable. Yes.

I do want to talk about the current situation that we're all experiencing, that we're all dealing with, this crisis that we're in the midst of. Starting a company is always hard, starting and running a small company in the midst of a complete global lockdown is just a whole another layer, Maddy, how are you doing? And I would like to hear from Therese and Freddie, any thoughts about how to navigate a crisis.

We're seeing a lot of budgets cut. Typically, our budgets come from an R&D department within the company. And so those budgets get reconsidered when something like this happens, so we're trying to navigate, is it insensitive to do sales right now? How do we adjust to what's going on knowing that a lot of the teams that we work with, or would be talking to are effected?

BlackLine survived the 2008 recession, Therese, what did you take away from that?

It was actually interesting because at the end of 2007, we decided to no longer sell on-prem software and be SaaS only. And it was crazy because that was very fortuitous timing. Because what that did was as the recession hit and, capital budgets dried up, and people were trying to cut heads, being able to offer them SaaS software, which had much less risk, much lower initial cost and automated to help them, actually worked out very, very well for our company. So I think the thing that we learned is that you've got to sell something that provides real value, that's the key to making it through a downturn. If somebody really finds value in what you've got, then they're going to buy it no matter what the economy looks like.

So make sure that you're solving a tangible need that happens regardless of the environment, and then you'll still have customers.

Yep. And I would think about two things in particular. People, why do people buy products like yours, Maddy? Or like Therese's, and mine? They buy it because they're trying to do usually just one or two things, which is either reduce costs or enhanced revenue. And if you could focus on those two things, of course, in your case it's largely the second one, how they can come out with new innovative products. Because the world's going to get back to purchasing things, certainly the economy in North America is largely driven by consumer purchasing. It's going to get back to that pretty soon and people are going to need new products, and they're going to need new ways to transform their businesses. So I think there's going to be a lot of opportunity for you in the times ahead to help organizations do that.

There's a third one, Freddie mitigate risk.

Yeah, that's absolutely right. I guess I was thinking about just looking at a balance sheet or an income statement. It's like reducing the cost on the bottom end or increasing the revenue. But yeah, mitigating risk, enhancing security, there's a bunch of them that I think are going to be more and more, actually probably line items in the time ahead. You're totally right, Therese.

Well, we are at our mark, so I want to thank everybody. I want to thank Therese Tucker for joining us from BlackLine and sharing a wealth of insight and information. And of course, Maddy joining us from LOOMIA and learning about the advent of e-textiles and navigating sales in a market that doesn't exist, which is something that I think a lot of our listeners are grappling with. So thank you to Maddy Maxey at LOOMIA, the CEO and founder there. And of course my co-host Freddie Kerrest as always.

Couldn't have done it without you.

Thank you.

Thank you so much for your time. I really appreciate the advice. It's just invaluable. So I'm grateful that we could be all be on this podcast today.

Well, Freddie, that was an amazing conversation.

I really enjoyed it.

I'm curious to know what was one of your big takeaways from it?

Well, the first one is all about hiring the right person at the right time. I think there are sales professionals that are right when you have a zero or one or two salespeople, you're trying to build that for a sales team. Very different profile than that salesperson you want to hire number 25 on the third sales team you have geographically, internationally.

There was something that you said that was a major takeaway for me from the conversation, which is the idea of hiring in threes and feeding that competitive energy, but also trying to understand which sales style is going to work best for the company. And also understanding your product because if you only have one sales person, then you don't know if it's the sales person or the product.

Well, along with those three people on the competition, I think another thing that really drives salespeople obviously is incentives. So I think my third takeaway is the importance of modulating your incentive structure, depending again, on where you are stage of company. If it's early on, you might want the incentives to be very clear. What you're trying to do is drive proof of concepts or demos. You might be a higher base, lower variable, but later on you really want that aggressive variable compensation plan that the account executives can really blow up, make a lot of money on.

Well, all in all, just a really great conversation, great insights, great stories and great people.

Yeah, I really enjoyed it.

You've been listening to Zero to IPO, please tune in on Spotify or Stitcher or wherever you get your podcast and we'll see you next time.

Looking forward to it.