Welcome! This week we’re turning the tables — I’m the one being interviewed! I was recently the guest of a Clubhouse Talk hosted by my good friends Nick Mehta of Gainsight and Ashu Garg of Foundation Capital. At its core, the Subscription Economy is about building customer-centric businesses, which was a big part of our discussion. We also talked about the importance of narrative, the art of attracting investment and talent, some hard-won startup lessons, and the implications of subscription models on the market at large. Enjoy!
Welcome everyone, my name is Nick Mehta and I’m the CEO of Gainsight. As most of you know, we sell primarily to subscription-based businesses, and we’ve always felt like we’ve been following a trail that’s been blazed by Zuora and Tien, who coined the term Subscription Economy over a decade ago. Tien, could you start by telling us what it’s like to create a brand new category like that?
Well, you don’t intentionally set out to create a category, but you’re always trying to answer the same question: What’s compelling and relevant right now? I haven’t worked for many companies in my career, but they’ve all shared a common question: What’s the big trend shaping enterprise software right now? In the Nineties, everyone was trying to figure out the client-server question. Later, at Salesforce, it was the Internet. Can we make software as easy to manage as buying a book on Amazon? In the early days of Zuora, our question was: Could every business and every industry someday adopt the subscription models that are working so well for SaaS right now?
We couldn’t see why not. And if that was the case, then it looked like enterprise software was about to be reinvented all over again. So why don’t we be the company that figures that all out? That was our idea. And then we told the story to a few journalists, and one of them said, “What you’re really doing is powering the Netflix economy.” He said it better than we could. But it all goes back to the same question: “What’s going on in the world right now, and how do we communicate that idea, as well as our place within it?” And every now and then the side effect of that kind of effort is that you wind up creating a category.
I love that. That’s awesome. And I’ve obviously watched it the whole way. I also appreciate how you describe the category in a really big, aspirational way. Something you’ve been doing recently is a newsletter series, where you’re interviewing people like the head of Stanford Business School. Can you talk a little bit about the role that thought leadership helps in your effort to sustain this category?
Well, I’ll go back a little here. Somewhere in my twenties, I started reading Businessweek because I was brand new to all of this stuff. How do I understand business? I was an engineering major. A total e-geek. And I noticed that there was a format to a typical article. It always started with a particular person, in a particular place, dealing with a particular problem. And after the article told their entire story, encapsulating all its key ideas, it always went back to that same opening scenario. That’s how they engaged their readers. They started with a narrative hook, before they got to the main ideas. So that’s what we’re trying to do with the newsletter. We’re trying to tell stories, and they usually involve a customer as a protagonist.
It’s funny, several years ago I was talking to an actual Businessweek reporter about this really cool customer of ours, a pet tracking service that started at Qualcomm. And lo and behold, I pick up the magazine a few weeks later and there’s a profile of this company, but we’re not mentioned in it! And I was a little mad at him, but it just proves the point — a good story is worth its weight in gold. You can’t just talk about your product all the time. The simple idea with the newsletter is to extend the principles of the book into a weekly experience. It’s a way to let you subscribe to the book.
That’s awesome. You’ve also done a great job of taking that messaging to your go-to-market process. For example, if you google “greatest sales deck ever,” Zuora comes up. Pretty high praise. How do you think about your sales communications?
Look, I was surprised when that came out. I’ve since met Andy Raskin. He’s a really interesting guy. But it goes back to that same question: What big change is going on in the world right now, and what is our company’s role within that change? And please answer in the form of a story. Tell it in a way that’s compelling, but that’s also easy to understand. Now, is there some self-promotion happening in this process? Of course. But the main goal is to write that great Businessweek article.
We have a lot of early-stage entrepreneurs that listen to our Clubhouse chats, so I’m wondering if you could speak to what it was like to fundraise and attract talent in the early days. You obviously started with a great story — how did you set about implementing it?
Sure. So one of the benefits of having a sincere, authentic story is that it ends up having a binary effect. It starts attracting investors, employees, and partners. It self-selects for people who genuinely agree with the mission. This is true even today as a public company. If you agree that everything’s moving to services and recurring revenue models, then you’re in. If you don’t, then okay, I don’t know what to say. Hopefully, one day you will. We’ll keep trying to show you.
Investors, of course, love market focus, so in the early days we told them that we were going to start by selling to other SaaS companies like ourselves. And I had one investor actually say to me “Well, how many SaaS companies are there going to be? Maybe a thousand, tops?” Which is pretty funny in hindsight, right? But my response was something like, “No, no. We’re starting with SaaS because that’s an obvious TAM to go after, but we think every company is going to make this shift.” Again, we looked to stories in the market. We talked about Netflix. We talked about Zipcar. We also benefited from some lucky timing, because in 2007 there were a lot of investors who missed out on the first wave of SaaS. They weren’t in Salesforce, they weren’t in SuccessFactors, they weren’t in Taleo. Those were the only four or five public companies at the time. We had come out of Salesforce and WebEx. So we were a known quantity.
Once the company started really gaining traction, how did you decide to really start going after other industries outside of SaaS?
Whenever you have a choice or a conflict like that, the real goal should be to attack the conflict itself. In other words, how do you change an “either/or” situation into a “both/and.” Because if you can do that, then a new frame emerges. You actually put yourself in an entirely new place. Quite honestly, I reject the whole “crossing the chasm” paradigm. I simply break it down into short versus long-term. In the short term, what’s going to help us grow the fastest so we can get to the next round, hit that next milestone? Sure, let’s focus on SaaS, but let’s be careful with our language and our product capabilities so that we have room to grow into other markets. So pretty soon, for example, we started working with newspapers. We landed one, and then a whole portfolio grew from that.
Executing on a short-term go-to-market strategy while always expressing a long-term vision ensures that you’re always keeping your ear to the ground, and starting to see where those other greenfield opportunities are starting to take shape. For example, we didn’t necessarily see ourselves as working with car manufacturers during our early days, but now we’re working with almost all of them. But it all starts with the first one, and then you build from there. In general, I think it’s a healthier approach than to build some artificial dividing line between SaaS on one side, and the rest of the world on the other. Because guess what? The whole world is turning into SaaS.
With the benefit of hindsight, is there anything you would have done differently during the early days of the company?
The first thing I would say is to watch out for hindsight. If you’re not careful, you can curse yourself with it. Of course, we could all grow ten times faster if we got a chance to do it all over again. The one lesson I tell a lot of early-stage entrepreneurs is to be very careful with job roles and organizational efforts when you’re less than thirty employees. At Salesforce, we didn’t really have any. There were coders and non-coders. And that was a good thing. By the time it got time to specialize, we all had a hand in everything.
But if you start hiring for specific skill sets too early, then you’re already building siloed departments, whether you realize it or not. You don’t get to take advantage of that early collective intelligence, which is a very special thing. At Salesforce, we were all finishing each other’s sentences.
So keep the hive mind going as long as you can. That’s a great lesson. After a certain point, though, once you’ve got product-market fit, did it feel like the company gained its own momentum, or did it still feel like you were pushing a rock up a hill?
Anybody that says that it’s not like pushing a rock up a hill is lying. Otherwise, it wouldn’t be a startup, right? Marc Benioff probably wakes up and still feels like he’s pushing a rock up a hill. That’s why the magic continues over there. If it wasn’t hard, then you wouldn’t be doing something new. If it feels easy, then you’re probably just taking something that works and maintaining it, which is fine, but that’s not really what startups are about.
Lately, you’ve been wrapping a lot of strategic resources around your core product, like the Subscribed Institute, for example. Can you speak to your thinking behind that?
This goes back to the point about long-term strategy. If all these huge verticals — auto, IoT, finance, law, government — have the potential to reinvent themselves with subscription models, what’s the common denominator? The common denominator is direct relationships between vendors and customers. And now we have a group of really smart people who are consulting some of the biggest firms in the world on how to build those relationships.
When we pushed out the first release of Salesforce in November of 1999, none of us had actually seen our customers using our product in real-time before. And it was an amazing experience. Because we used to ship everything. You had to go back into your Oracle logs to see if anything was actually happening. But then we watched it actually happen before our own eyes. We saw people logging in, and creating new contacts. It was mind-blowing! And today, there’s no reason why any company in the world can’t have that same experience.
So that’s the thinking behind the Subscribed Institute, which handles all the best practices and writes studies based on our own platform data, and the Subscribed Strategy Group, which actually goes into these boardrooms and talks to these CEOs. They’re helping these companies build better products, based on the usage insights they’re getting from these new subscription services.
If everything’s moving towards subscriptions, what do you think are some of the long-term implications for these businesses with regards to the third-party sales channels? Are some of them going to become obsolete?
It’s a good question. I don’t think it’s a question of elimination so much as re-organization. We’re actually seeing a lot of sales channels do really well with subscriptions because they’re armed with so much more information. If every vendor can know what their customers are doing, then how does the ecosystem re-arrange itself to account for these new super powers? It’s not necessarily the case that the disruptors are the winners and the legacy companies are the losers. Not at all.
For example, is Uber destined to win against a GM or a Ford, because it’s sitting on this gold mine of usage data, and those other companies are still selling cars off of lots? I don’t know. If the car companies can start generating their own usage data at scale, then maybe those advantages equalize. It’s not like Uber can start manufacturing their own cars all of the sudden, right? Structurally, those legacy car companies are sitting on a lot of huge competitive assets. The real question is whether they can really take advantage of them.
Again, that’s the beauty of subscriptions, because they allow you to adapt as your customers’ needs shift. You can build a much wider value proposition. If a car company starts thinking about how to get you from point A to point B, as opposed to strictly focusing on vehicle unit sales, then all sorts of options open up. You get to reinvent the whole ecosystem.
You get to create a whole new category!