20VC Bessemer's Byron Deeter on The Commonalities Of Truly Great Founders and Learnings From Investing In Box, Twilio and GainSight

In this episode of the 20 Minutes VC, host Terry Stebings chats with Byron Dieter, a partner at Bessemer Venture Partners and a seasoned cloud CEO and founder. Dieter discusses his transition from operations to venture capital in 2005, leading Bessemer's global cloud practice and contributing to over 100 cloud investments. He emphasizes the importance of clarity of vision and aggressive execution for successful entrepreneurs. The conversation delves into the evolving SaaS landscape, the impact of market valuations on early and late-stage companies, and the necessity of efficient growth and customer success management. Dieter also shares insights on various sales approaches and the significance of maintaining a competitive edge through continuous learning and embracing new ideas in the tech industry. The show wraps up with Dieter's latest investment in Rainforest QA and his advice for entrepreneurs seeking mentors in their startup journey.

• Terry Stebbings hosts the 20 Minutes VC podcast.
• Terry is available on Snapchat under the username H Stebbings.
• The episode focuses on venture capital, specifically in the Software as a Service (SaaS) sector.

You are listening to the 20 minutes VC with your host Terry Stebings, and you can find me on Snapchat at H Stebbings.

This quote introduces the host and informs listeners where they can connect with him on social media.

• Byron Dieter is a partner at Bessemer Venture Partners.
• He is a former cloud CEO and founder.
• Byron returned to venture capital in 2005 to lead Bessemer's global cloud practice.
• He has been involved with over 100 cloud investments.
• These investments represent one-third of the market cap of all public cloud companies.
• Byron has led investments in companies like Box, Twilio, Intercom, and Cornerstone OnDemand.
• He is consistently ranked as one of the top global investors across all industries.

I'm delighted to welcome Byron Dieter, partner at the world-famous Bessemer Venture Partners.

This quote introduces the guest, Byron Dieter, and highlights his significant achievements and contributions to the venture capital and cloud computing industries.

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The 20 minutes VC is brought to you by Lisa...We'd also like to thank Mattermark for providing all the data and analysis for the show today.

This quote acknowledges the sponsors and partners that support the podcast, offering insights into how the show is funded and the resources used for data analysis.

• Byron was the founding CEO of an early cloud company.
• He worked with Bessemer Venture Partners as an investor and board member.
• After selling his company to IBM in 2004, he explored options and joined Bessemer.
• Byron had previous venture experience with Ta Associates before 2005.
• He joined Bessemer's Menlo Park office to focus on cloud investments.

So it started on the operations side actually was a founding CEO of an early cloud company... jumped over here to dive in full time to the cloud world.

Byron recounts his journey from being an operator and CEO of a cloud company to becoming a full-time venture capitalist with a focus on the cloud sector.

• Byron's move to venture capital was driven by intellectual curiosity.
• He enjoys learning new things, meeting new people, and exploring different areas.
• His job allows him to continually engage with technology and innovation.

Mainly intellectual curiosity... that is actually now my job.

Byron explains that his passion for technology and constant learning is what drew him to venture capital and is now a central part of his role.

• Exceptional operators have a clear and aggressive vision.
• They also execute their plans hyper-aggressively.
• Founding CEOs and long-term corporate CEOs tend to define success and lead companies effectively.
• Success requires passion, as the work is demanding and all-consuming.
• The best founders and operators are determined and adaptable, overcoming obstacles to build successful businesses.

One is aggressive clarity of vision and then the second is really hyper aggressive execution... they run through walls to get things done.

Byron identifies two key traits of successful operators: a strong, clear vision and the tenacity to execute plans aggressively and persistently.

• The CEO's primary job is to hire a great team.
• Teams should not be built by outbidding competitors but by inspiring them with a compelling vision.
• CEOs should offer a path for personal and professional growth within the company's vision.

Really the primary job of the CEO, obviously, is to hire a great team... compel them by the vision and opportunity.

Byron discusses the importance of a CEO's ability to attract top talent not through financial incentives alone but through a compelling company vision that promises growth and development opportunities.

• Leaders must create and communicate a clear, inspiring vision.
• The vision motivates employees to work with enthusiasm in a competitive market.
• Attracting and retaining talent is crucial in a competitive environment.
• A strong vision is necessary to maintain a dedicated team.

"You need to set out a vision that inspires people to get up every day, come to work and excited to be there, because this market in particular is just too damn competitive with talent and with great opportunities all around you to attract and retain a team if you're not able to do that."

This quote emphasizes the importance of a clear and compelling vision for leadership within highly competitive markets, particularly when it comes to attracting and retaining top talent.

• The SaaS market has seen significant valuation changes, particularly a $63 billion drop in late-stage valuations.
• Early-stage SaaS companies are somewhat insulated from public market volatility.
• Late-stage private SaaS companies face more pressure due to unsustainable high valuations.
• Adjustments in valuations and available capital are expected across all stages.
• Early-stage companies should focus on growth and hiring, not immediate public offerings or sales.

"But it's really the late stage private companies that are going to get squeezed the hardest in the coming months because they've had this reality distortion shield in the jobsian sense of valuations and operations."

This quote suggests that late-stage private companies will face challenges as they adjust to a more realistic valuation and operational environment, referencing Steve Jobs' famous "reality distortion field" to describe the previous overvaluation.

• Market corrections will lead to adjustments in capital availability and valuations.
• Early-stage companies may see fewer deals but can still find opportunities to grow.
• The best firms and entrepreneurs are expected to continue receiving funding.
• Chaos in the market can be beneficial for early-stage companies focusing on building their business.

"But the end of the day, I think it's actually fine for chaos to be happening when you're an early stage business specifically because you're not looking to go public, you're not looking to sell. You just want to hire some great people, put your head down and go."

The quote implies that early-stage companies can benefit from market chaos as their primary goals are not immediately affected by public market fluctuations, allowing them to concentrate on growth and team building.

• Firms should focus on unit economics rather than aggressive sales and marketing.
• Market corrections necessitate reevaluation of business plans and cost of capital.
• Businesses with negative gross margins are at risk and may not secure further funding.
• Cloud businesses have good gross margins, but must balance growth with customer acquisition costs and lifetime value.
• Adjustments in spending and hiring are being made for efficiency.

"Absolutely. The thing that our best entrepreneurs have done over the last couple of months in reaction is reevaluate their plans, think about it in terms of current cost of capital, and make any adjustments that falls out of that process."

This quote highlights the importance of revisiting business strategies in response to changes in the cost of capital and market conditions, suggesting that successful entrepreneurs are proactive in making necessary adjustments.

• Customer success management has gained prominence as businesses scale.
• Initially, SaaS companies focused on acquiring new customers, but renewals are now critical.
• The majority of revenue for growing businesses comes from renewals and upsells.
• Effective customer success management requires dedicated systems, people, and processes.
• Investment in customer success management software and leadership positions is increasing.

"And so this idea that a CRM system could do that effectively, or an account management role from the old software world could do that effectively, is really out of fashion."

The quote indicates that traditional CRM systems or account management roles are no longer sufficient for customer success management, highlighting the shift towards specialized tools and roles dedicated to customer retention and satisfaction.

• Reducing churn and increasing upsells are crucial for the long-term value and margin of a business.
• Improving churn statistics has a tangible market value, with significant financial implications over time.
• A small improvement in monthly churn can lead to a substantial increase in market value.

"And hands down, the single biggest thing a company can do to drive long term lifetime value of the business and increase margin is to improve those churn stats."

This quote highlights that the most impactful strategy for enhancing a company's long-term value and profitability is to focus on reducing customer churn.

"We quantified that to roughly $100 million of market value for every 1% of monthly churn you can change."

This quote provides a specific figure to illustrate the financial impact of reducing churn, emphasizing the importance of customer retention efforts.

• Efficient growth is linked to the enterprise value and is the most rewarded in the short term.
• Efficient growth involves balancing customer acquisition costs, payback period, and total cash consumption.
• The concept of the peg ratio, although not directly applicable, is analogous to the balance of investment and growth in these companies.
• A one-to-one ratio of net burn to ARR growth is a rule of thumb for Series B stage companies.
• Upsells and renewals can justify higher burn rates if they lead to significant lifetime value.

"Growth is still fundamentally rewarded, and it's the single most correlated variable in the short term to enterprise value."

This quote emphasizes the importance of growth in increasing a company's value, suggesting that it is a key metric for success.

"For every dollar of net burn, we like to see a dollar of ARR growth added."

This quote presents a straightforward benchmark for efficient growth, indicating a desirable balance between investment and revenue growth.

• The sales approach in the SaaS industry is shifting, with debate over the effectiveness of top-down versus bottoms-up strategies.
• Every cloud business is unique, making it inappropriate to apply a universal sales strategy.
• Success can be achieved with different sales models, as demonstrated by companies like Twilio and Docusign.
• The market is moving towards a lower friction model, with digital tools facilitating the buying process across all company levels.

"Every business is a snowflake. Every product has a unique customer profile, go to market profile, etc."

This quote suggests that each business requires a tailored approach to sales and marketing due to its unique characteristics.

"We will continue to look to invest in businesses that survey a wide range of buyers and company sizes quite intentionally."

This quote indicates a strategic investment preference for businesses that cater to diverse customer bases and adapt their sales models accordingly.

• Hyper-growth companies demonstrate the leverage potential of SaaS models at scale.
• Wall Street is beginning to understand the advantages of SaaS for both customers and companies.
• SaaS models allow for unified development efforts and fair economics, with high customer retention similar to licensed software.

"These models are fantastically leveraged at scale and I think that Wall Street is really just getting their hands around that."

This quote reflects the recognition of the scalability and efficiency of SaaS business models, highlighting the growing appreciation of their value by investors.

"Your entire dev team can be focused on new features and new capabilities for your current customers."

This quote underscores the operational benefits of the SaaS model, where development efforts are streamlined and focused on continuous improvement for existing customers.

• The industry has matured, with businesses becoming cash flow positive and creating tangible results.
• This maturation is seen as rewarding and enjoyable from an industry perspective.

And so I think as an industry, it's really been fun and rewarding to see the maturation and to see that in scale as businesses are starting to get cash flow positive and really create results from a company perspective.

The quote emphasizes the speaker's positive view on how the industry has evolved to a point where businesses are not just starting up but are also becoming financially sustainable and productive.

• Two main vectors for launching successful businesses: creating a SaaS version of an existing solution and introducing net new solutions made possible by modern technology.
• Examples of successful SaaS versions include Workday (HR) and NetSuite (Finance).
• New solutions are enabled by internet connectivity, cloud computing, and enterprise mobility.
• Investments in companies like LinkedIn, Eliqua, and Twilio exemplify success in creating novel solutions that were previously inconceivable.

One is doing the SaaS version of X... There's another category though, of net new things that are only possible because of Internet connectivity, because of cloud computing, because of enterprise mobility... And that class of things is our investment in LinkedIn or Eliqua or Twilly or some of these businesses where in many cases, well, they certainly weren't possible before...

The quote outlines the two primary strategies for creating value in the business world: improving existing products or services through SaaS and inventing entirely new solutions thanks to advancements in technology.

• Email filtering is a key productivity tool, with services like Microsoft's Clutter and SaneLater being used to manage inbox overload.

Email filtering. So I use Clutter from Microsoft Insane later and it strips out a lot of the junk in the inbox and saves a ton of time.

The quote provides a specific example of how the speaker maintains productivity by using tools to filter out unnecessary emails, thus saving time and staying focused.

• The speaker prefers reading business profiles, blogs, and magazines over books.
• Michael Lewis is mentioned as a favored author, and 'The Everything Store' is a recent read.
• Dozens of websites and magazines are consumed regularly for information and updates.

I'm not a huge book guy. I read a lot of kind of business profiles and things... But I'm much more a blog and magazine guy.

The quote highlights the speaker's preference for short-form content over traditional books, indicating a focus on current events and business insights through blogs and magazines.

• TechCrunch is frequently visited for its insightful content on new companies and industry developments.
• Bleacher Report is appreciated for its citizen journalism and sports content.
• These sources are valued for their ability to present new ideas and keep the speaker informed and humble about the industry.

But I probably hit most frequently TechCrunch and it's a slap in the face in many ways... I love seeing what people are coming up with, and I also am humbled by the things that we didn't think of that others did and keeps me sharp.

The quote reveals the speaker's favorite sources of information and the impact they have on his awareness of industry trends and competitive landscape.

• Missing out on great companies and ideas is a natural concern.
• The focus is on understanding and learning from missed opportunities rather than being distracted by them.
• There is an eagerness to engage with entrepreneurs behind great ideas, even if it's just for a conversation or to offer help.

Of course I'm human. So yes, missing out on great companies and great ideas is the thing that terrifies me... But it's very much when you read that concept, it can be just a seed deal or series A or just some launch and you're like, God, that makes so much sense.

The quote expresses the speaker's human reaction to missing out on investment opportunities and the desire to connect with innovative entrepreneurs regardless of the investment outcome.

• The key piece of advice for entrepreneurs is to find mentors.

One piece of advice, find mentors.

This succinct quote advises new entrepreneurs to seek guidance and support from experienced individuals in the industry.

• Rainforest QA was chosen for investment due to its innovative approach to a known problem and a strong team.

Rainforest QA, we just announced that a few weeks ago said yes because they are taking a totally different approach to a known problem and we love the team.

The quote explains the rationale behind the recent investment, highlighting the importance of both the innovative solution and the team behind it.

• The speaker expresses gratitude and enjoyment for being a guest on the show.
• There is an acknowledgment of the value in the conversation and an encouragement for the audience to engage further with related content.

Thank you Harry, my pleasure. Keep up the great work.

The quote conveys the speaker's appreciation for the opportunity to share insights and encourages the host to continue their good work.