How to Win podcast with Peep Laja

Rob Gonzalez:
If you're a startup and you're doing something meaningfully differentiated and it's of high value, you're probably not charging enough. Full stop. Whatever your pricing strategy is, you're probably not charging enough.

Peep Laja:
I'm Peep Laja. I don't do fluff. I don't do filler. I don't do emojis. What I do is study winners in B2B SaaS because I want to know how much is strategy, how much is luck, and how do they win. This week, Rob Gonzalez, co-founder and CMO at Salsify, a commerce experience management platform that utilizes the digital shelf to help its clients win. Rob built and founded Salsify in 2012 and has grown the company to over 740 employees. Salsify concluded their Series F funding in 2022, securing 200 million in funding, which brought their valuation to over $1 billion.
In this episode, Rob breaks down some of the strategies that have helped Salsify win and some of the mistakes they've made along the way. We discussed diversifying customer acquisition channels, promoting employee autonomy and why you might be undercharging your customers. Let's get into it. You guys were declared a unicorn a couple of years ago. You told me earlier that the channels that worked in the beginning for you were pretty narrow, so cold calling and webinars but the over time you needed to diversify the channels. So can you tell me about the journey of acquiring customers?

Rob Gonzalez:
Yeah. A little bit of background on our customers, we sell to branded manufacturers and we sell products that help them compete online more effectively, is the layman's way to think about it. The big customers are folks like a Coca-Cola or a L'Oreal, and they're selling lots of products through lots of channels and lots of different geographies, and doing that is complicated. In the early days, E-commerce was not a big deal for Coca-Cola in 2012. It seemed like a far off proposition. Amazon at that point was not yet even a top 10 retailer in the United States. E-commerce for most of the big manufacturers was if you were generous, a couple points of gross in most categories. There were some categories like personal care that were much larger penetrated, but for the most part it wasn't that big a deal. The folks that were dealing with E-commerce, dealing with digital shelf in a Johnson & Johnson and in an Estee Lauder, they weren't out there actively searching for a solution like we provided.
The way to get in front of them was to bang on their doors and get in front of them. Search engine marketing, SEO, those things were not things that worked that drove a lot of business for us back then. What did work was cold calling to promote webinars that we were doing, doing webinars in partnership with retailers like a Walmart that we were working with, and things like that. I was told and advised very early on that when you find a lead strategy that works and that scales, just do that. Don't get bored of it. People will talk about a hundred different ways you can acquire customers. Just ride the pony that works as hard as you can. Don't divide your attention, don't divide your resources, don't divide your time. That's what we did. We did that for probably eight years and saw crazy growth as a SaaS business. Now, the mistake that we made is we were not as obsessive about looking at the leading indicators for that channel as we should have been. At some point the quality of the volume generated at scale from cold calling a webinar started dropping off.
At that point, what we should have done is we should have very aggressively diversified to a second pipeline source. For example, partners works really well for us. It took us a little bit of time after we probably should've to really create a partner organization that scales, that generates significant pipeline, and things like that. This time around, we're watching very closely that the pipeline sources and trying to figure out when we should have a third. I think for a lot of founders, you could read a lot of stories online about 15 different ways to acquire customers. Cold calling is one of them. Inbound marketing is another one of them. Social media personalities is another one of them. Product-led growth is another one of them. Referrals is another way. There's just a lot of different ways that you can acquire customers. The advice that I was given that worked for us was, if you find one that works, just forget about the rest of them for now and just ride that one best as you can. Just make sure that you're clear when it stops.

Peep Laja:
How long is for now? When is the right time to expand out? How would you know?

Rob Gonzalez:
For us, the leading indicator that we should've been paying attention to was the cost of a first meeting with a prospect. For many years, it was in the two, two-and-a-half thousand dollars on average range. It started moving up, and then over a course of 12 months moved pretty quickly to the 3,500 bucks a month range on average. The reason was effectively that we had tapped out the market. We were spending a lot more to get just an incrementally larger amount of volume and an additional dollar into that channel was not really yielding results. If we had been looking at that number religiously earlier, we would've seen it. And we weren't because it didn't work for us for eight years. That's how you know. Basically, you want to look at your cost of acquisition, of bringing somebody into the funnel where you're having a meaningful conversation. If that cost starts tweaking out at you, that's the very moment that you really go deep on the cost, and then start thinking about a second pipe source.

Peep Laja:
Acquiring customers seems to be getting more complicated, more expensive all the time. In 2022, a HubSpot survey founded almost half the marketers surveyed reported increased cost of customer acquisition in the last year, with another 48% reporting that their CAC stayed about the same. That leaves only 2.2% who said their CAC had increased. Both playbooks are getting stale. To acquire customers cheaper than the competition and dominate, we need new playbooks. You need to constantly uncover new customer segments to serve, new opportunities to pounce on, new channels to tap into.
For that, we need ideas, better ideas and more research, small scale experiments before committing to large budgets. Even more important, we need to focus on conversion optimization. We need to get more out of the people already hitting our website. The most effective way to do this, improve your messaging. Someone signing up for a trial or requesting a demo is the effect. But what is the cause? It's the some motivation. The best way to get more people to take action like schedule a demo with you is to make them want to do it. You do this through words, through messaging on your website.
What other leading indicators are you looking at besides the cost per meeting?

Rob Gonzalez:
One that I'm really interested in right now that we just started looking at last year, and honestly I wish we'd started looking at years ago is what we're calling the market engagement rate. There are some businesses out there like a HubSpot. I'm in Boston. HubSpot's in Boston. HubSpot's an amazing company. HubSpot's addressable market is ridiculously large in terms of the number of accounts that they can go after. It's every small business and even almost every large business. It's just a huge number of accounts. If you look at vertical SaaS businesses are addressable market is enumerable. We can pretty much list out, these are the accounts in North America that are interesting to us on whatever timeline. You're talking about low tens of thousands. You're not talking about a hundred thousand or a million. With that kind of a limited TAM from an account perspective, it's possible to say what percentage of the account are engaging with us at all, are reading our blogs, are attending our webinars, are actual customers, and you could even sub segment it.
In manufacturing you've got CPG, you've got grocery, you've got food and bev, you've got apparel, you've got footwear. There's a lot of different categories that subdivide. Within each of those categories, what's your engagement rate? How many of these folks are engaging with you at all? That's something that we've started focusing on, especially if you're playing the long game. You're going to be in business a long time. The more often that people hear about you over five, ten years, the more likely they are at some point to do business with you. I think that's a really, really interesting one from a leading indicator perspective as a business that I wish we had started paying attention to earlier, and now I just find very interesting to look at.

Peep Laja:
You guys were a single product company for a long time. But then in 2021, you made some acquisitions. What have you learned from this experience?

Rob Gonzalez:
Yeah. We picked up a company in France called Alkemics, which made a very complimentary product to our core product. Our core product, as I said, we sell to brand manufacturers and it helps them in this omnichannel E-commerce world. The retail product that Alkemics had does almost it's like the mirror image. If you're a major retailer and you're dealing with 50 or 100,000 or so suppliers, how do you systematically onboard really, really compelling product experiences and E-commerce content from that whole supply chain? Which is, it's a hard problem. You build an amazing product to do that. They had pretty much dominated French FMCG retailers. So LeClerc, Auchan, Metro, InterMarché, everybody in France uses this product.
Because we had that and we had also been investing in orders and inventory platform, and other things over the years, we made the decision, let's start operating as a multi-product company. Let's have these GMs that each have a P&L for each of the product lines that they're going after. In hindsight, that was a mistake for us for I think a couple reasons. One is, the product lines were not clearly enough delineated from each other, so several of the product lines were effectively on the same underlying platform. They were almost more like feature extensions more than they were distinct product lines. The other is that I think from a scale perspective, when we did this, we were around a hundred million in ARR. I don't know that we were at a scale to be ready for that. The amount of infrastructure that you have to put around each individual product team, they're like mini companies within a company, so it's in a very expensive thing to do.
And then if you're not mirroring it throughout the whole company, if you're not segmenting the sales team somehow, which we didn't do, then all of a sudden you've got several different product lines that are clamoring for attention and resources from parts of the business that are not segmented on product lines and it created a lot of misalignment within the organization on where priorities would be. So we've undone that. We're back in doing the bread and butter of one major product that we're selling to manufacturers and it's just easier for everyone to operate, and it helps the business grow faster and it helps us deliver success to our customers in a clearer way. At some point, we'll revisit that in most SaaS businesses, especially vertical SaaS businesses like Aviva end up as multi-product companies. We did it too early and we did it in a way that I think we learned some lessons from.

Peep Laja:
It's very difficult for one company to stand for more than one idea. When I was developing CXL and Speero together, it made sense to spin one out as a separate brand. It was too confusing to be both an agency and an E-learning company wrapped into one. If you are going to keep your products under the same brand, whether you're developing a new product line or acquiring an existing one, you need adequate infrastructure within your organization. Here's Okta's chief product officer Diya Jolly on how she structures teams to support multiple product line.

Diya Jolly:
When you're a single product, your teams are really organized by what I would call, competence, so you'd have someone running the UI. You'd have someone running your logging, you'd have someone running some parts of the core server, et cetera. When you go to multi-product, you have to change your team structure. And the way you want to think about this is the stuff that's common in, I would say 30, 40% that's common should become a platform team. You should always have that platform team that serves all your products and then you should have product teams that are independent and can run separately.
What happens if you do that is you A) you reduce the surface area of prioritization because this is a 30 40% of things. And B) you also then can control prioritization more at the top level by allocating resources. You could say 50% goes to my core, 30% goes to my second product, 15% goes to my third product and 5% goes to incubation. Then layer that on with, there's no hard and fast rule that each of the product teams have to wait for the platform. If they need to get the market faster, the smaller they are, they can build something that can eventually get taken on by the platform team if it's beneficial to everyone else. If you try to keep making prioritizations at the global level, it gets really too hard and complicated.

Peep Laja:
You've said that you have kept culture front of mind from the beginning. How have you gone about culture and what practical advice would you have for fellow founders?

Rob Gonzalez:
In the early days, Michael Skok is an investor in Boston. He led our Series A. Michael spent a lot of time with us well before investing. Michael loved E-commerce and he said, "Look, before you hire your first employee, you've got to be careful about the culture that you're going to create." And the reason that you'd want to think about that before hiring your first employee is that the people that you bring in early, especially those first five, ten, fifteen hires, they're going to impact the culture significantly. You don't get to decide what the culture is on your own. The culture is going to be to some extent, organically developed thing.
If you bring in people that are really combative, guess what? You're going to have a combative culture whether you like it or not. If you bring people in that are super passive aggressive, guess what? That's going to be your culture whether you like it or not. If you're clear about the company you want to build before you make those first hires and you make sure that those first hires align with the company that you want to create, then it gives you a chance of the company actually being what you want it to be at the end of the day.
The thing that we cared most about was that the business was a place that people had the room and the space to do great work where they were empowered to do work on their own, where they weren't being micromanaged and where they could build and develop a career, and where after working at Salsify and whatever they do next, they look back at Salsify and say, "Man, I had a great time there. That was a great place. I learned a lot. I accomplished great things and I advanced my career."
That's what we wanted to be true from the company from day one. Every scale step, we go from three people to five people, to ten people, to twenty people, to a hundred people, to 200 people, now we're over 700 people, every time we hit one of those scale steps, we survey our employee base. We talk to people and we try to understand, are we getting this empowerment thing right? Are we not getting it right? Where are we messing up? How can we do better? What are examples where we're messing it up? By revisiting it from time to time like that, it's caused us to change some processes to make the company better align with our values.
It's also caused us to make some employee changes. There are sometimes that somebody could be good at their job but bad for your company and we've cut people because they're bad for the company. They're not aligned with the business and culture that we want to create. You do have to make changes and you do have to make sometimes some hard decisions to be true to the business that you're trying to do and keep it culturally aligned. We haven't always been perfect here, but I think we've done a pretty good job by keeping it as something that we spend time thinking about.

Peep Laja:
By surveying his employees at regular milestones, Rob is able to track alignment within the company and catch early warning signs of anything amiss in the company climate. But the employees service are basically useless if you don't have a strategy, if your service are too long, too irregular in cadence, or your employees don't see meaningful change as a result of sharing their feat, they may start to feel like it's a waste of time. Here's emotional intelligence and employee engagement expert Don Finn with some tips and tricks on how to run an effective employee survey.

Don Finn:
The greatest source of information about what inspires, motivates, and engages your employees is your employees. One of the best ways to tap into employee engagement is a survey. Ask questions about relevant factors that affect engagement like how well they're being managed, what career opportunities are available, are their ideas being solicited and respected? Is their compensation fair? Do they like the work environment? How would they describe the company culture? And very important, you want to ask, how likely is it that you would recommend this company to a friend or acquaintance? Keep in mind that serving employees is a process, not an event. Be transparent. Let them know the good, bad and ugly of what you've learned, and the top three things you'll be focused on doing something about.

Peep Laja:
All of places, culture is like slogans on the wall or I guess, now nobody's at the office anymore, so I don't know where the slogans live, in Slack maybe. But how do you reinforce the values on a day-to-day basis in very practical terms?

Rob Gonzalez:
One thing that we did is we hired Head of People Experience named Colleen. She brought in a practice from Vistaprint. Vistaprint has thousands of employees. So from a much, much larger company that matched our idea of empowerment. It came from the US Navy and in particular, the nuclear submarine in the US Navy. There's this process of clarity, competence, and autonomy that is structured. When we were a hundred people, the founders knew pretty well every single employee at the company. We were in every single major decision. We could see what was happening and we could change things that we didn't like that were happening. At 500 people, we can't do that anymore. I don't know everybody at the business at 500 people. I don't know their names exactly. I don't know them by face anymore. Especially being remote, having employees in countries all over the world, at some point you can't do it yourself. You've got to have some way to scale it.
The clarity, competence, and autonomy structure from the Navy worked for us in that way. Basically, what that means is clarity is you understand what the goal is, you understand why it ties to other goals, you understand what the company goals is, what your personal goal is and your job and how those things connect. Competence is, okay now the goal, you know what needs to be done. Competence is, can you do it? Can you do it well? Do you have the right training? Do you have the right of mentorship from your boss, and so forth. Autonomy is once you've got clarity on the goal and once you've got competence in the role, autonomy means you can be left alone to do the job. We don't have to check in with you. It's a earned thing that happens over time.
With that structure, you can look at different organizations. You can look at, for example, sales. You can look at engineering. You can look at marketing. You can look at them through that lens and say what's working, what's not working. What processes hinder autonomy? What processes hinder competence? What hiring practices hinder competence? Do people understand what the goals are and how the goals connect to each other? You could ask those questions to diagnose where things are falling off. Pragmatically, once you get down to the brass tacks, it's going to differ department by department role by role, how you actually have the conversation around making these things true and takes work. But having the structure that Colleen brought into the organization allowed us to do that work at the scale that we are now.

Peep Laja:
One of the management wisdoms you have picked up over the years is the balance between delegation and application. Can you tell me more about that?

Rob Gonzalez:
Yeah. It's related to the cultural value that we're trying to get at, the empowerment value of people being able to be left alone to do great work and feel empowered to make decisions, and just take action on things. The downside, there's a risk in that goal, which is, think of it this way on a spectrum. On one end of the spectrum, you've got micromanaging. Micromanaging is, I as the boss know what I want and I am going to dictate very specifically exactly what you're going to do in order to get me what I want. I'm going to just be all over you all day long. At that, point you're just a robot. You're given very specific tasks. You're going to do those tasks exactly as you're told. If you don't do them right, the boss is going to be all over you. That's one end of the spectrum.
The other end of the spectrum is abdication, which is the boss gives you a highfalutin, little bit squishy goal, and that's it. This is a silly example, but win the market. But exactly, what does that even mean? What does win the market mean? Does it mean to have the most sales in the category? Does it mean to have more than 50% of the sales in the whole category? You got to get more specific. Help me out here. Define win the market. Abdication is basically giving somebody a goal like that, and then just walking away and moving on to something different. There's a balance between those things.
You can't delegate something away and also delegate the responsibility of that thing away. You've got to figure out how to delegate something away where somebody has room to do the job without you micromanaging and being all over them. But where you know still get signals whether you're on track and whether things are working out the way that you want them to work out. For me, over the last 11 years, I've made both kinds of mistakes. I've made mistakes where I've been a little bit all over somebody that needs to be left alone a little bit. In particular for projects where I'm very passionate about the project, it almost has nothing to do with my confidence in the person. It has to do with, I'm very excited about this thing. I want to get in this thing, I want to do all these things. I'm, almost by accident, micromanaging the person.
On the abdication side, this happens when there's a task that honest to God, I just don't want to do. I was like, "Man, can you just take this thing and just get it off my desk and whatever." They're both failure modes, and so what you really need to do is you need to, again, clarity, competence, autonomy. You need to give somebody a clear goal. You need to make sure that they're equipped to do that. For the autonomy piece, the thing that you've got to do is you've got to make sure that you've got your own leading indicator measurements with that person on what progress is going to look like and how you're going to get early indications, whether it's on or off track without feeling like you're micromanaging and being all over them.

Peep Laja:
Speeding up organizations starts with accountable autonomy. You reduce the number of hoops one needs to hop through. Hop executives are removed from a lot of decision making and they're not bottlenecks. For instance, at Netflix, everyone signs contracts for the projects they manage. You own it. Folks have full decision making capabilities. Managers can argue against them, but are actively discouraged from vetoing them. At Nissan and Toyota, project managers for new models enjoy total control over the course design and engineering. Senior managers, even the president of the corporation are forbidden from interfering once they have approved the project. Democratize autonomous decision making and watch your company speed up. One of the things you've said is that you guys left money on the table because your pricing strategy wasn't as good as it could have been. What have you learned about pricing strategy? What mistakes did you make and what do you wish you had done differently?

Rob Gonzalez:
Man, pricing. Mark Andreessen was interviewed by Tim Ferriss years ago. Tim Ferris used to ask this podcast question.

Tim Ferriss:
If you could have one billboard anywhere with anything on it, what would you put on it?

Rob Gonzalez:
Mark Andreessen said.

Mark Andreessen:
I've actually thought about hiring a skywriter to do this one. Right in the heart of San Francisco, I'd build a billboard with just two words on it. Raise prices.

Rob Gonzalez:
I always thought that's just an awesome billboard. On some level, he's right. If you're a startup and you're doing something meaningfully differentiated and it's of high value, you're probably not charging enough. Full stop. Whatever your pricing strategy is, you're probably not charging enough. There might be exceptions for product-led growth companies where you're really just trying to give them a taste and get them in, and drive usage, but that's not Salsify. Salsify is in a classical enterprise B2B system that doesn't particularly grow over much by usage, and so you're signing contracts and you're negotiating the contracts. I think over the years we've tried various ways to figure out how to tie the thing that we sell more directly to revenue for our customers. Think about, a simple way to do this would be take a percentage of every sale on Amazon.com, and there are businesses that work very well this, that are take rate businesses.
In Boston, we've got Toast also founded by Endeca alumni. Toast has a giant revenue stream that's a take rate revenue stream from restaurants. It's an amazing revenue stream and it's a revenue stream that restaurants are happy to pay. If we could at Salsify have a similar business structure, there's value to that. We were looking for models that had some type of a scale characteristic associated with them like that. We made a couple different mistakes. One is for our market, it's unclear that there's a clean model that's like that. We're a lot more like back office, data management software than we are a front office transactional business. We've made pricing mistakes where we're selling the platform and we've got a scaling factor, and the scaling factor ultimately doesn't matter that much in terms of driving incremental revenue. We've made that mistake years ago.
Another one that we've made is giving away effectively the platform for large businesses for a few years we were doing this. Again, thinking that we would get the expansions by, for example, adding more retail channels to the usage. If you're a manufacturer, you're using us for Amazon, you're using us for Walmart, what about using us for Build.com too? What about using us for ACE Hardware? What about using us for Lowe's, and so on. Each individual shelf that you add would be incremental revenue. It turns out that this is one of those economic things that you don't know until you get into it. But for most manufacturers, their top five customers are 80% of their revenue.
If you're selling grocery in the United States, Walmart, Target, Kroger, Albertsons, Ahold, Publix. Once you get past that list, that's 80, 90% of your revenue. The rest is regional players. There's a disproportionate value to the first ones that doesn't apply as you go up. The next incremental shelf that you have is not going to drive as much value to the customer or as much business. For us, we tried too hard for a while to chase the thing that a lot of people were chasing that was a little bit of a fad, which was the product-led growth tied to a scaling factor and all that sort of stuff. We didn't do enough of the hard enterprise work which is, let me understand your business. What is the value that you can get as a business from the software and do more of a, think of it as almost like business management consulting.
You come in there and you say, "The project that you're doing with us, here's actually the sales growth you're going to see. Here's the operational savings that you're going to experience. Here's how I can prove these things. Your team, by the way, agrees with these numbers, so install us. You're going to make 5 million incremental next year. You're going to save 500,000 in operational expenses." Doesn't that justify a million a year expense? Doing that hard work on a customer by customer basis to build the business case is what allows you to have pricing strength. Especially like Salsify. You've got a unique differentiated product in the space that has high value. That's our journey there is I think there were a lot of companies that saw a lot of success in take rate kind of structures. It took us a long time to realize that maybe that's not exactly the business that we're in and maybe we have to have a little bit of a different approach towards it.

Peep Laja:
To close out, you've said that the last decade was defined by content, but the next 10 is going to be about community. You guys have made some moves focusing on the community. Can you tell me about that?

Rob Gonzalez:
Yeah. We've got a property that we operate called the Digital Shelf Institute, where we just do thought leadership. it's not on Salsify.com, it's not branded Salsify. We don't advertise Salsify to that audience or anything like that. It is completely separate. The reason for that investment is very much a rising tide raises all ships investment. If you get to something, I said a long time ago, 10 years ago, E-commerce at Johnson & Johnson, for example, was not what it is today. I don't know what the exact numbers, but a two-point of gross, it wasn't that big a deal. Now especially post COVID, E-commerce is do still doing a lot of growth for folks. It's a big deal for these companies. The folks that know how to do E-commerce well within these businesses is still limited. Most people still don't exactly understand the dynamics of E-commerce shopping.
Our idea was, look, the people that are trying to fight the fight within these companies, they're change makers, they're leaders. They are trying to teach their company how to move forward into this future together as a team. If we can create material to empower them that they can then use to educate people within their organizations, everybody wins. You're starting to see people with Digital Shelf in their job title, for example, in manufacturers, and these folks are starting to hang out together. So that's what we're trying to do is if we can give them a place where they can come and they can talk and they can learn from each other, and we can provide some educational materials, we think that's a worthwhile investment. Ultimately, it's one of those market growing investments where I can't tell you exactly how it ties to our revenue, but I believe that if that market grows and they are successful, then for sure, we're going to be disproportionately benefiting from it because we're the leaders in our space.

Peep Laja:
What are three of Rob's winning strategies? One, stick with what works for a long time, but be ready to diversify your customer acquisition strategy when the unit economics change.

Rob Gonzalez:
You want to look at your cost of acquisition, and if that cost starts tweaking out at you, that's the very moment that you really go deep on the cost, and then start thinking about a second pipe source .

Peep Laja:
Two, be conscious of how your first hires affect your organization's culture in the long term.

Rob Gonzalez:
You don't get to decide what the culture is on your own. The culture is going to be this, to some extent organically developed thing.

Peep Laja:
Three, be deliberate about your pricing strategy.

Rob Gonzalez:
Doing that hard work on a customer-by-customer basis to build the business case is what allows you to have pricing strength.

Peep Laja:
One last takeaway from Rob.

Rob Gonzalez:
I, with a lot of confidence, I believe that if that market grows, then for sure we're going to be disproportionately benefiting from it because we're the leaders in our space.

Peep Laja:
And that's how you win. I'm Peep Laja. For more tips on how to win, follow me on LinkedIn or Twitter. Thanks for listening.