What questions should people be asking but aren't, which prevents them from scaling up and growing sustainably?
How businesses predict their growth and prepare for capacity is a crucial issue to think about because it affects every employee at a company and because slavishly adhering to the "triple triple double, double, double" rule of thumb for expansion can be constricting.
What are the primary indicators of a SaaS company's performance, and how do they impact valuations?
The Annual Recurring Revenue (ARR), gross and net churn on revenue, gross margin and growth rate, and planning for future expenditures and recruitment are key criteria for gauging the success of a SaaS company. The tracking of these measures is essential, and valuations frequently depend on them.
Do you observe any trends in startups that invariably result in unanticipated consequences in the future?
One tendency that causes unforeseen outcomes in startups is the assumption that employing brilliant people alone will result in success without taking into account their particular abilities and experiences.
What are the advantages and disadvantages of recruiting someone with start-up expertise versus industry experience?
Because they lack the requisite startup expertise and knowledge of startup culture and mentality, hiring someone with industrial experience for a startup can result in failure.
Marcus Cauchi: Hello, and welcome back to the inquisitor podcast with me, Marcus Cauchi. Today I have, as my guest Belal Batrawy, he is the founder of Death to Fluff. Now met Belal about a year and a half ago and love his stuff. Um, speaks a lot sense. He's on a mission, much like me to fight against the common malpractices in sales that have turned sales from a noble, into a very ignoble profession and a miserable place to work.
We're both on a mission to create a better future for future sales people and future managers to equip them so that they stop treating their people like dispensable cattle. So without any further ado,
Belal Batrawy: Thank you it's honor to be here. Marcus. I'm excited to be on this show where we could just be really, really ruthlessly candid. Cause I think this conversations They just don't happen enough. They really don't.
Can you give us 60 seconds on your history
Marcus Cauchi: Well, can you give us 60 seconds on your history? 'Cause I think in terms of framing, this, this it's really important.
Belal Batrawy: Yeah. So, uh, really fast for everybody, uh, that doesn't know I've been a part of six startups. The first one when IPO, the second one was acquired by LinkedIn.
The third one became a fortune unicorn. And so did the fourth. One of 'em failed and then. You know, the, the next one will probably be acquired in the next couple years. So I've been a part of some what you would call quote, unquote, very successful startups. And most of I was one of the first, if not the first sales hire.
So very early on, you know, stuff where it's like pre you know, $1 million in revenue, that kind of timeframe. So I've seen a lot helped a lot of startups grow and I could tell you right now, I've seen how it goes bad. how often it can go bad quick.
When did you first begin to question the way things were done around here?
Marcus Cauchi: So, when did you first begin to question the way things were done around here?
Belal Batrawy: Yeah. Yeah. You know, it was probably at my, my, somewhere between the second and third startup. You know, the first startup, you don't know anything. You're just going along with the flow, learning, everything that needs to be learned and so on. And I saw success at that startup and it, and it went IPO. So by all, you know, by all hallmarks, it is the exception, not the norm.
The significant, vast majority will never go IPO. So that was considered by all means of successful startup. And even there, I saw things that didn't quite make sense, but because it's my first time, you just assume that's the norm. And then by the second and third startup, somewhere in there, I was like wait a second.
This doesn't really seem, um, calculated or sophisticated or, or even like pragmatic. This is just, um, a lot of wishful thinking and then a lot of stressful, forced effort to try to make that wishful thinking
What are the questions that people should really be asking, but they're not, and it's preventing them from achieving growth and scale sustainably?
Marcus Cauchi: So wanting to something to happen and making it so quite different things. So what are the questions that people should really be asking, but they're not, and it's preventing them from achieving growth and scale sustainably? That's the important--
Belal Batrawy: I think one of 'em is how companies forecast their growth and then do the capacity planning for that because it affects every single person at the startup.
Marcus Cauchi: Yeah.
Belal Batrawy: You know, so there's this rule of thumb that some VC created a long time ago, that just became the widely accepted norm, which is that a startup should triple its revenue in the first year. Triple again in the second year, then go on a run of double, double double. So it's called the triple triple double, double, double, and startups just blindly follow this rule of thumb. That's nothing more than what a VC saw a several startups do in order to go IPO. And remember going IPO is the exception, not the norm.
The significant majority to startups will never go IPO and they just try to model this. And so they say, well, in order for us to triple the first two years, we're gonna have to do X, Y, Z, and then did sustain that. Doubling that for the next three years, we're gonna have to do 1, 2, 3. That's our plan, regardless of what you sell, who you sell to, how the product or how the market reacts to your product, your competition, doesn't matter. It's the same rule of thumb.
What other acts of inhumanity might be a good indicator that maybe the management and leadership are on the wrong course?
Marcus Cauchi: So using a blanket approach obviously is prone to some nasty surprises when things don't fit the script. What other acts of inhumanity might be a good indicator that maybe the management and leadership are on the wrong course?
Belal Batrawy: Then, well, so what happens from this capacity planning is that then they come up with, with a revenue target and then they hire a bunch of sellers and then give them this revenue target. With no historical data that they can hit it. Okay. And then a bunch of lies and half lies about equity. And if people really knew how equity worked and how complicated it was and how many ways you're not gonna get your value and money from your equity, they would never ask for it.
They would never ask for--. I mean, so like, you know, first off, the significant advance of startups don't actually tell you, um, what your equity is worth. So they never tell you what the total share is. So they'll tell you how many shares you got, but they won't tell you out of what's the size of the pot, right?
So they might tell you, yeah, you got 15,000 shares Marcus, like out of what? Out of 1 billion? Out of a, a hundred million? Out of a million? Out of what a hundred thousand? That varies quite a bit. Most employees at startups will never own more than 0.05% of the startup they work at.
Marcus Cauchi: Right?
Belal Batrawy: Most employees, I'm not talking about the founders. The founders will typically have a couple percentage points, maybe more, but the significant master majority of, of startup employees will not have more than 0.05% on the highest end. And then that value is gonna get diluted every single round of funding. Because the investors get preferred stock, preferred equity.
And employees do not. And when the payout comes on the big day, you know, whatever, 8, 9, 10 years, assuming that it ever comes, right? Because again, it's the exception, not the norm, that a startup would be successful would exit successfully or go IPO. By that point, you're so diluted in value. You won't get much like you might may- maybe if you're lucky, you'll get enough to put a down payment on a home.
Marcus Cauchi: Mm.
Okay. So there's the smoke and mirrors. There's a number that is an arithmatical fiction that's being created, uh, in terms of this is the stretch number that we think we should be hitting no historical data, go out, spend a fortune, hiring a team, and then throw them in at the deep end and watch them go through a revolving door.
High Employee Turnover
Marcus Cauchi: That's literally how it works. Yeah.
Okay. So the economics of that, let's just explore that for a minute. Cause there are probably wiser finance people than you and I out there who work for VCs and maybe they can comment and they can come back and help us understand this. But if you're turning over your staff, you incur recruitment costs, training costs, on boarding costs.
There is a price that management has to pay. If the turnover is so high. Then you will eventually develop a reputation for being a really shit place to work. If there's constant turnover in your staff, there's probably a lot of knowledge walking out of your door every time someone leaves and that's rarely captured in your CRM.
So all that knowledge about accounts and people and the marketplace and everything else leaves. And you end up churning customers. So you now have to replace those customers. I I'm struggling to see any of the upside.
Belal Batrawy: I mean, look, it's, it's complicated though, right? Because here's the thing like at one of the startups I was at that was prone to a lot of what you just described, high turnover, inconsistency, and so on. The margin on the product was 98%.
Marcus Cauchi: Yep.
Belal Batrawy: 98%. Only in SaaS. Can you have profit margins that high. Doesn't exa exist anywhere else? That's the beauty of SaaS, is that the profit margin compared to any service business compared to any, um, you know, physical goods, business. Uncomparable. Uncomparable. The only cost of goods was literally computing costs, the cloud computing costs.
And that was it.
Marcus Cauchi: Understood.
Okay. So you can make really hefty margins,
Belal Batrawy: Hefty margins on small deals.
Marcus Cauchi: I understood.
Belal Batrawy: Yeah.
Marcus Cauchi: But why would you waste so much time, money, resource, effort, opportunity cost, burn through leads, burn through people, burn through customers when you could be keeping all of that just by behaving well?
Belal Batrawy: They wouldn't see it that way. Like if you, if I, if we could travel back in time and I would put you in front of the founder. And you're making these nice logical arguments in front of an impassioned, illogical, emotional person. It's not gonna work because they have a belief that the product and the company needs to move in the direction they see fit.
And there's nobody that's gonna tell them otherwise. Look, the investor gave them the money and didn't provide them any more support after that and told them I'm gonna meet with you every six months. And you're gonna gimme an update and these are the things I expect because this is what good performing companies in my portfolio do.
And the founder took that money, agreed to that deal and is now gonna through hell or high water, make it happen. And it doesn't matter if some employee at the company has a different opinion and wants to see things done another way. It's just not, it's not how, it's not how it works in reality.
Marcus Cauchi: Again, I'm, I'm puzzled.
And maybe you can point me in the right direction here. If I lose 15% of my customers every year in order to stand still every three years, I have to replace 49% of my customers. I know that the received wisdom, which I think is massively wrong incidentally, is that it costs 8 to 10 times more to sell to a cold customer than it does to sell to an existing customer.
So I'm spending 8 to 10 times the cost of sale to double, quadruple, quintuple, sextuple, the length of my sales cycle. And I probably have to do that at some loss to my margin. As a shareholder, surely I want to maximize my profit. Why wouldn't I make 107, uh, cents on the dollar? Because I haven't given a whole load of it away in fruitless marketing lead generation and interruption marketing costs.
Belal Batrawy: So, so here's the disconnect then. Now I see where we're at Marcus. So remember when you described the revolving door of talent, the issues that happen at the company, even with all of that going on, the startup that I'm thinking about in particular had a negative churn.
So for, for the folks, the sitting negative churn is when accounts grow. Your churn rate becomes a negative number because the people you sell buy more of what you're offering.
Marcus Cauchi: Yeah?
Belal Batrawy: And because of that, your churn rate actually turns into a negative number, which is an ideal state for any SaaS company, especially one that has 98% margin.
Marcus Cauchi: Yeah.
Belal Batrawy: So even with everything that was going on, the product was still good enough and smart enough, and capable enough to at least cause negative churn for the SMB customers that were buying it and realizing, "Hey, we want more 'cause we're gonna keep buying more as we grow". And this goes back to one of the best things about SaaS, which is that virtuous cycle.
It's a virtuous cycle. Jeff Bezos talks about it when they found it. Amazon web services, you give somebody cloud computing, you give it to them cheap. They see success because now they can reduce their costs for the good sold and get more margin. They end up growing and they buy more of your cloud computing.
It's a virtuous cycle for your business.
Marcus Cauchi: Yeah.
Belal Batrawy: And that's how AWS became the behemoth in the space well before Google cloud and Microsoft Azure. Because of that. SaaS does that. That's one of the special, unique things about SaaS business that doesn't exist in other product lines, 'cause it is a subscription.
What does a successful SaaS blueprint look like then?
Marcus Cauchi: What does a successful SaaS blueprint look like then? I know it's a huge question, but if you can give us some--
Belal Batrawy: There are a couple key metrics here. I I'll even I'll even tell your, I'll tell, tell the listeners like the ones that matter the most, if you're wondering how valuations happen and what are the key metrics or startups it's ARR, right?
How much revenue are they actually generating, gross and net churn on that revenue? Which are two different metrics, but essentially you wanna calculate your, your net revenue churn. You wanna see what your gross margin is. And then the growth rate that's happening at that company. Those four metrics amongst many others, but those four metrics are critical.
You wouldn't have a single, you know, startup that wasn't tracking those four metrics. And the thing is as a SaaS company with a decent product, it's not, especially at the margins that we're talking about, it's not hard to build some track record of success, doing that, even with mismanagement. Where it catches up to you is when your burn rate on the cash that you've gotten from investors becomes too high because of the things we've talked about. There's turnover and that turnovers causing a loss in production and value and, and it ends up costing your business far more than anything, like product market fit or competition, or, you know, all that kind of stuff, external factors.
Marcus Cauchi: Right, so this is, this is really where you need to plan what the business will look like in the future. And you need to work backwards. To try and work out where the trigger points are for you to be able to invest in new technology or make new hires and how long you need to make a good hire. Not just fill a seat with a warm body, but get the right person.
So you then need to spend time designing how you are going to build your bench and committing that to your time, operating with it. I think what I'm actually hearing you tell me is that a major contributory factor is that often the people who lead a business suffer from an overblown sense of invulnerability and rightness.
And no one is confronting. The perception of the way things are in a way that allows them to make an intellectual leap between the direction they're headed and a better way.
Belal Batrawy: It's not that no one confront them, is that there, there is no one to confront them. That's not, it's not that no one will that there, there actually is no one to confront.
I mean, look at people, get confused. Like I've been in SaaS for over a decade now. Like people get confused and they're like, how does Uber not make a profit and reach the size that they've reached, right? And that's an extreme case, but it happens quite a bit for the majority of startups that are series B and C and D, which are the, the significant majority of start even series A startups.
Very few of them are ever cash flow positive. They are completely operating on a loss. They're absolutely burning cash in order to build these businesses. And if the funding stopped, the business would have to shut down, 'cause it is a loss making endeavor. That is the, that is the norm, not the exception. So all those people know that, right?
I mean, like you said, there's smart financial people looking at the metrics and spreadsheets. I've every startup I've been a part of had qualified accountants and controllers and so on looking at the numbers the same way I could see them, you know- green and red. It's like, yeah, we're making money but what we're making costs more than what we make. But that hasn't stopped anybody throwing money in, because as you said, if you can get that one company that does go IPO or does get acquired, the valuation for a startup is, you know, 10, 15, 20 X, multiple of the revenue.
Marcus Cauchi: - was 166.
Belal Batrawy: Yeah. Yeah. So it's, it's insane. So this is like it's gambling in a sense. And here's the problem though, I was the chip at some of these startups being played on the, on, on the board. I got definitely screwed over at a couple startups. I could safely say that for sure. Maybe, maybe even more if I was maybe more aware, but, uh, you know, you're, you're the chip in all this, especially as a seller, I mean, look.
If a startup's not doing so well or, or, or misses revenue targets or something like that, you're not gonna go and fire the entire founding engineering team. You know, you're not gonna go and just wipe away your entire product team. But the sales people? Yeah, like that's okay.
Marcus Cauchi: There are cash crop.
Belal Batrawy: Yeah.
Are those valuations, and therefore the quotas, utterly unreasonable and unrealistic in the first place?
Marcus Cauchi: You sow, you reap, you harvest. And it doesn't matter how many get burnt through as long as the overall numbers achieved. Don't care how many of them hit quota. When I was chatting to Beck Holland a couple of weeks ago, the data she's pulled together, can't remember the original source, is 75% of SDR is not hitting quota.
And 85% of AE is not even achieving 75%. And I heard another study that came out, I think it was Gartner, 3% of sales teams worldwide hitting quota right this year. So again, are, are those valuations, and therefore the quotas, utterly unreasonable and unrealistic in the first place?
Belal Batrawy: The valuations are per, you know, subjective that that's, you know--
Marcus Cauchi: Right so they working backwards from a notional valuation saying we want this amount of money back, and then they work it all back from there and say for us to do that in five years, following the triple triple double, double, double, these are the numbers. This is the trajectory.
Belal Batrawy: That's literally how it is. I mean, I've sat in meetings with founders doing their initial revenue forecast for a startup that just raised either a C round or a series A round.
And that's exactly what they do. It's just very basic rudimentary arithmetic. This is what--
Marcus Cauchi: MiIllions of dollars and livelihoods and reputations and having people's homes, repossessed, and everything of all that, and we repeatedly see these companies fail. 'Cause it does. It really feels like VCs in private equity, basically play roulette.
And they put a number of chips down. Knowing that overall, they just need a nudge and they just need to beat the house. I- in the UK, the British venture capital association years ago, but I don't imagine, imagine it's improved 'Cause there haven't been many innovations, they thought that 8% rate of return was good enough.
Silicon valley was closer to 30. Now, when you're talking about not very big numbers as a percentage, but with the amount of money swashing about, it's actually shitloads. They can get away with it because the economics of big numbers mean that they need to, or three of them to, you know, IPO, maybe a couple of trade sales and flip them.
What if we could get twice that number to IPO trade sale and flip without any additional cost?
Marcus Cauchi: And the majority, they don't care if they die on the vine. Now there's a huge human cost to that. But if the question was, what if we could get twice that number to IPO trade sale and flip without any additional cost?
Belal Batrawy: It's a thought experiment, not grounded in reality, Marcus, because the changes that would need to happen are so, are so fundamental to the foundation. It would, you know, it, it couldn't occur. It just couldn't occur. I mean, I, I I'll tell you, I'll tell you 'cause it, I know that study, that Beck is referring to there's a state of sales report that came out with that recently. I believe it was Salesforce, but I can, I can double check where, where that came from 'cause I saw the same stats as well.
But let me just give you two real world examples like this is, this is reality. One of the startups I was at, I found out after the fact all of this, but I was able to confirm it all. I was put into a territory with eight other reps. We were given a quota. That territory historically had extremely high turnover and it was actually referred to as a dead zone.
Marcus Cauchi: Mm-hmm.
Belal Batrawy: And that was kind of like the it's like a dead zone. So it was known as that internally. I didn't know that at the time found out afterwards. That territory, in terms of capacity planning could sustain four reps. So they put eight there's only four. They were purposefully knowing that we would not hit quota, but collectively eight sellers failing to hit quota is the same as four sellers achieving it.
Company hit its target for the territory. While myself and five others got screwed over pretty bad, missed our numbers, you know, living off our base, not really hitting what we're supposed to, and it all went pretty south. One of the eight people that was there, still at that company and everybody else left that's that's prices got fired.
Marcus Cauchi: That's price.
Belal Batrawy: That's real.
Marcus Cauchi: Yeah.
Belal Batrawy: Yeah.
That really happened again. I'll share one more with you just to like, make this as, as, as tangible for the audience as possible. 'Cause it's hard to believe. It's sort of like, it's like the equivalent of like when the us, hou-- housing market crash. And then they, they did that movie about it.
And we were all watching the movie. Like, I can't believe this really happened. And in several parts of the movie, they had to pause and be like, this actually happened. And you're like, no way, no way. It's this stupid, no way. The entire economy of the world literally was impacted by the stupidity of some greedy people doing subprime mortgages.
Marcus Cauchi: Mm-hmm.
Belal Batrawy: Yeah, that really happened. So this is really happening. Like I know it, it might be like, yeah, it's just two guys. Just kinda. Complaining, no, this stuff happened. So at one of the founders at the startups that I worked at, he went to the conference for the, for the VC. So the VC host of conference, this is a pretty prominent VC stuff.
I said the name, everybody would be familiar with it. And the VC asked which company had hit a certain metric and growth along the lines of that triple, triple, double, double, double, and, uh, the founder and co-founder of our startup stood up 'cause we were on track and he said in an entire room of I think over on about 70 something founders. Himself and his co-founder and one other stood up.
Marcus Cauchi: M-hmm.
Belal Batrawy: So this, this prominent VC that has a massive portfolio has literally two companies that are actually quote unquote successfully on the path.
Marcus Cauchi: The whole set up is built on really shaky foundations because the VCs in private equity pedaled the lie of the unicorn and IPO. Which we know almost never happens. The best they can probably hope for is that another PE acquires them and then asset strips.
And then you've got all these people in the portfolio wanting to be the one, and they don't want to admit that they need help. Oh God. Who are they called? Is it Altos.vc? They did that fabulous article on the Series B trap. So you make loads of money, boots tracking, and you think, all right. Okay. So now we'll go out and get some proper funding and you raise a big chunk of change, 20, 30, 50 million.
And now you go on the spending spree and you go out and you hire lots of people. Uh, you buy shiny objects for your Mar Tech and Sales Tech. You recruit some senior people, big, heavy hitters, and you carry on producing the product. But you start talking to the customer. So your product market fit drifts a little. And sales, you are, you're not hitting your commercial targets. And two, three quarters go by, you've lost the best part of the year. You burnt through 10, 20 million. Then the revolving door in sales really kicks in. And so you hire fire high fire. Then you start playing into your management layer and then you get through three or four VPs of sales or CRAs.
And you get three, four or five CEOs, and then you die on your ass. Now that seems to be a depressingly common setup. So again, it, I, I, I look at the prospecting cycle, you know, that the best conversion and the best customers usually come from a hand delivered personal introduction between three people who trust one another.
That's definitely the best.
Belal Batrawy: Yeah.
Marcus Cauchi: Cold is the hardest, most expensive. And has the lowest loyalty factor.
Belal Batrawy: Yeah.
So why would you spend all of your effort, money resource focusing on the wrong end of that particular equation?
Marcus Cauchi: They tend to spend about two and a half times less. Uh, on the first order they buy three, uh, one third as often, and they refer one quarter as frequently. So why would you spend all of your effort, money resource focusing on the wrong end of that particular equation?
Why would you not just improve things like conversion rates in the middle of the funnel, instead of trying to pilot more work for the top of the funnel? Fix the bits that are already in.
Belal Batrawy: So now let's expand the scope to answer this question a bit, 'Cause I, I, I do have an idea. And so, and just I'm middle eastern by, by origin.
My wife's from India. So from the subcontinent, we both grew up in the US. So Western, you know, I don't speak with an accent or anything. I was the first in my family born in the us, but I have noticed something in the US about this idea of like work ethic. The harder worker wins is a very American principle that actually has its roots from Quakers, the, uh, settlers that were identified as Quakers in the early days.
It's a, it's a. Strong principle in their version of Christianity about hard work.
Marcus Cauchi: Hard work, and self-reliance.
Belal Batrawy: Right. And, and it's like, if the hardest worker was the one that's gonna be most successful, then like Bangladeshi, you know, sweat shop workers should be the richest people on the planet, not Jeff Besoz.
Marcus Cauchi: Yes.
Belal Batrawy: Right? Like, like Mexicans should be the like, there's like Chinese laborers that work harder than anybody on the planet. And I don't see them being successful in becoming self-made millionaires. Doesn't like work that way. So this idea of hard work. And I think part of that comes from, I'm just telling you from my experience, again, being in some of these startups, being in some of these meetings, talking to some of these founders as the first sales hire, you know, as the one that's producing revenue and telling 'em, here's what I'm seeing and getting this message back that it's just a question of work of just working harder, doing more, having grit and resiliency, the right attitude.
You know, success is, is not owned. It's rented. And, uh, rent is due every day in these kind of bumper sticker ideas literally are the things that are being said. And you're just like this, isn't a bumper sticker moment. Like I'm talking to you about strategy. I'm talking to you about real observations that are, that can be shown through our data.
And you're coming back to me with a bumper sticker. You know, line about work hard, you know, hit the ground running.
Marcus Cauchi: Well, they could invest in posters, motivational posters with runners on the, you know, it's lonely on the last mile and--
Belal Batrawy: Right.
Marcus Cauchi: That's a sore I'm sure that'll help.
Belal Batrawy: Yeah. And, and, but, but that's literally what happens in some of these, I'm not saying it's all of 'em, but I'm saying in some of these scenarios, like kids, you not, again, you're, you're dealing with a founder that is just as illogical and irrational as anyone else. They put their pants on in the morning, every same way as the rest of us and they make these emotionally charged decisions.
And they're not thinking like, "Yeah, you know, if, if we could just remove ourselves from the, from, from the emotional side and look as logically, let's just improve the middle of the funnel conversion, Marcus. And that should see our growth rate". That's not how they're thinking. They're not detaching themselves from the situation the way that they would need to.
Are there any patterns that you see in startups that inevitably lead to unintended consequences down the line?
Marcus Cauchi: And, and this is really the key. Because I don't think there's enough thinking going on. People are reacting. And, uh, my pal Hamish Knox in his book, "Accountability" started, uh, talking about founders and CEOs, managers being the Chief Fire Officer and the Head Arsonist all-in-one. My key question is this, are there any patterns that you see in startups that inevitably lead to unintended consequences down the line?
Belal Batrawy: So one of these patterns that I see very often is this idea of that if we just hire smart people, they'll figure it out.
Marcus Cauchi: Okay.
Belal Batrawy: Really? It's, it's a mantra in SaaS. Like anybody's worked in SaaS knows this. If we just hire smart people, they're gonna figure it out, right? I had a startup once that hired a very, very intelligent Stanford grad. Very, very well educated to be in the sales.
They had no sales experience, but they were wicked smart. Didn't work out. Turns out, turns out just being smart doesn't make you good at sales. Right? Just like, uh, being well spoken doesn't mean that you're, you know, you're gonna be great recruiter or something it's not like that. So that's a very, very common thing that I see happening, which is that we just hire a lot of smart people and then we equip them with benefits, with comfort, with this idea of their opinions matter and so on. And, and we'll just get really great results out of that.
Marcus Cauchi: So hope being their fundamental strategy.
Belal Batrawy: Yeah.
Marcus Cauchi: That's pretty shit.
Belal Batrawy: And that's why, by the way, just, just, even as a thought for this Marcus, like one of the, one of the most repeating mistakes ever than any, any, any startup recruiter will tell you happens constantly, is a startup will go and hire a senior leader from a market leading company,
Marcus Cauchi: Uhhuh.
Hiring the one with industry experience vs start-up experience
Belal Batrawy: To join their startup because they have the domain expertise, the connections with current customers and so on. And the assumption is this smart, successful, talented person will come into our startup and just transform it. And any, again, any recruiter for startups will tell you that is a recipe for complete failure. You know, Jason Lincoln and so many others talk about this all the time. Don't hire somebody that has industry experience and expect them to be successful in your startup because they don't have startup experience.
They don't know what it's like to be in a environment where there's more unknowns than knowns. When there's more questions than answers, when there's more to do than time to do it. When there's a prototype to fail mentality required, and they've never been challenged that way to prototype to fail. They don't understand that spending two weeks on one thing and finding out it's a total waste of time is actually a good thing than spending three months on four things and being inconclusive on any of them.
Marcus Cauchi: It's really interesting, 'cause there are so many cultural issues as well. And you know, as I investigate this whole space, you start to realize the complexity, the interconnectivity, the interdependence, the knock on effect, the unintended consequences.
And I'm starting to form a theory at the moment. And, uh, I'm reminded of a film I saw about the SAS and as the, there were this sort of clandestine bunch of ex-SAS people, and they call themselves the Feathermen because they apply a very light touch at the right point. And I think that there is something in this. Because if you look upstream and you look at the origin, the causes of your problems, the places where the problems began and two or more, uh, different threads that are affected, whether it's departments, whether it's customers, processes, systems, hiring, whatever, where those things overlap, that's where you apply gentle force early.
And you think of it a bit like a flywheel, the early mistakes that you make, the early bad decisions that you do not correct amplify over time as momentum builds, and then they, their hold on you becomes incredibly strong. The way I like to describe it, and I'm sure I stole it from someone, is that Start-ups are just one series of non-fatal experiments.
Until one is fatal. And if you make it through, without ending up in a fatal experiment, then you might make it through to three years. Now you've got to build your business so that you can scale, but most people build it to grow. So they end up having to use expensive brute force to grow it. I think the future is going to be a few large organizations and I think they will survive for longer than they probably deserve. But what will happen is a pirate mentality will occur and you'll get lots of individual specialists working together as strategic alliances. And they will come together within a client, solve that particular series of problems, and then dissipate and other people be brought in. And I think that's really a very, very powerful model for the future.
Belal Batrawy: That would be interesting to see. And, and I know what you're describing before that, when you're talking about that flywheel and those errors start adding up. I mean, so they call that in an engineering, technical debt, right? So any engineer that's been sort of knows this right?
In the early days of a startup, you'll have to make some decisions. And those decisions will have to weigh getting something to market versus getting something done the right way. There's trade offs, right. The right way, sometimes takes too long and you need to get it to market. So you'll do a shortcut.
You'll do it like this, you know, we'll program it like that. And that technical debt builds. And eventually you have an issue where like Salesforce a few years ago has this old legacy Salesforce product that's just so jinky. And so many hands have built it over the years that it can't be, um, fixed and they have to just make Salesforce Lightning, a completely new product from scratch.
The old one is just too messy to go back and try to fix. That's the technical debt that builds. This is a real thing. And you're describing a version of technical debt, which is like the company debt. I I've talked before about sales debt, not a very popular topic. I don't think sales leaders like to think this way, but you, you actually have talked about it multiple times, Marcus. This idea of as a sales leader, I start burning my opportunities towards the end of the quarter to try to hit revenue target, but that's a sales debt because there's a long term knock on effect to that, right? By judging myself quarterly and not--
Marcus Cauchi: It's a sales and marketing debt.
Belal Batrawy: Yeah. Yeah.
Marcus Cauchi: Cause both of those departments are affected.
Belal Batrawy: Right. But see, in the engineering world, this is a known thing, right? So if you go to an engineer and you talk about technical, technical debt, they understand immediately what you're talking about, right? So this is like a, like a well known, adopted principle in engineering. In sales, sales debt is not a thing.
Right? Like tell the sales leader, what you're doing is causing sales debt. They'll be like, what are you talking about? Don't understand. So for some reason we don't get it the way, uh, some of our peers and operations do. But yeah, I, you know, so I'm with you, I'm with you on the flywheel. I disagree that there's that future state's gonna happen? I just don't see that happening. I don't know how that's gonna happen. How are we gonna get to a state mark? Cause you gotta explain that to me.
Marcus Cauchi: Through strategic alliances.
Belal Batrawy: How? Why haven't okay. So why haven't they happened yet? Are they happening? Like, am I missing out?
Marcus Cauchi: Yes, you definitely are. And they are happening.
Belal Batrawy: Okay.
Marcus Cauchi: If I point to Tom Matson, he does hundreds of millions of dollars of business a year with a really small operation, all through strategic alliances. Simon Severino last year with a team of eight people in his core business, took on five and a half thousand new customers. Into his business, through his strategic alliances.
Belal Batrawy: That's crazy.
Marcus Cauchi: Now the, those are not unique by any stretch, but they are rare because the history of where most leadership comes from is direct sales, command and control, balance sheet, you know, worshiping up the church for finance. I think what's interesting is the next two generations, 60% of managers now are millennial and they've got quite a different set of values and outlooks.
Belal Batrawy: Very true. Yeah.
Marcus Cauchi: And what you described in your startups were, uh, bribing people with extrinsic reward, which most of them didn't understand. I was talking to, uh, a friend of mine yesterday and they are in September and they still haven't got their pay plan.
Belal Batrawy: Wow.
Marcus Cauchi: When their new financial year began in April. So they don't have their, and they dunno what their commissions are.
Belal Batrawy: That's garbage.
Is there a relationship debt as well through lack of contact?
Marcus Cauchi: Yeah. But it's that avalanche, the sales death, I love. I'm curious, is there a relationship debt as well through lack of contact?
Belal Batrawy: I guess there could be argued that there is something like that. I mean, I've never really thought of it that way.
Marcus Cauchi: Cause as a model, I think that could be really interesting. So you have the sales debt and the relationship debt on the, axis and, uh, they have they're in a credit or deficit.
Belal Batrawy: Right.
Marcus Cauchi: And then that tells you how much money and time and effort you're wasting on non prospects who will never buy down to your lack of attention.
Belal Batrawy: Yeah, that'd be interesting. I mean, so I'll, I'll warn you though, before you go down that path. Cause I have, I have an odd feeling you wil. I've tried to explain sales debt multiple times. And, uh, the message fell very, very flat. So--
Marcus Cauchi: Well, I, I normally run them through pain by numbers when it comes to where their costs are.
So a wonderful, simple one is pillaging next quarters, quota, or pipeline. So you gotta make 200 grand back. Your MRI is 6K. So now you gotta do 36 deals that you have to bring completely from next quarter forward. But now your FD says, look, hit quota, any cost given 30% off. So that takes 36 to 48. Now, when you think about it on average, it's $33 attempts to get three to one decision maker, unless it's the senior decision maker in IT, in which case it's one in 46. Only one in 14 of those effectives convert into a first meeting.
And only one in eight of those convert into a second. Okay. So just to get to a second meeting, you could easily have had to invest somewhere between 3,000 and 6,000 dials. And you blow seven out of eight of those. And what would the economic impact be on your business if you converted, forget training anything, if you could just solve that one problem of converting two out of eight, instead of one out of eight to seconds?
Suppose there are lots of these small changes that you can make that mean not only do you hit your revenue growth targets and you always, uh, get your logo, new logos and you build a really strong, solid pipeline. So you never have to pillage from your future pipeline. Every one of your reps gets greater.
And instead of selling, uh, into a cold market, you always sell hot. If you could genuinely do all of that, is there anything that would prevent you from doing it? And the biggest response to that will be well, you know, we're doing well enough. It's a good enough line. Complacency.
Belal Batrawy: Yeah. Yeah. I, I, I know that will line that, that line.
It's like a trigger for me, 'Cause I, 'Cause I've heard it before, when I present an, an alternative path to a founder and I hear, yeah, but we're doing fine.
Marcus Cauchi: Along with, that's not the way we do things around here.
Belal Batrawy: Right.
Marcus Cauchi: That should be a sackable offense.
Belal Batrawy: Yeah. Yeah. It's real. I mean, it's yeah. I will totally support you and champion this whole idea of sales debt. Because I think, it's adoption and, and in engineering is a very powerful concept and it allows engineers to weigh the pros and cons of their decisions early on. And just being aware of technical debt is a huge thing. I mean, I've heard engineering teams that the startups I've been at, sitting there talking about, okay, well, like let's just manage our technical debt.
We could do this, but we're gonna have to plan in the coming cycles to come back and potentially try to fix this. You know, so they're, they're doing exactly what you're describing. They're knowing there's gonna be a future cost of this decision. Now we're gonna have to come back and rework this and that's gonna cost us something.
That's an opportunity cost there. I'm like, wow, this is brilliant. I've never, never, and I'm using that word, knowing what it means. I'm not being dramatic. I've never heard a sales leader say that. I've never heard sales leader with some--
Marcus Cauchi: A lot of them can't be asked. It's just too much like hard work and they'll have to fight people internally and they've got other fights to figh. But there are a few, but you have to find people who have ambition and their motivation is intrinsic not extrinsic. They're trying to do something meaningful. They're trying to prove a point. They're trying to make a dent in the universe. Now what I'm finding is that there's an age cutoff around 46 plus. They're kind of beyond help. And under 26, they probably don't have enough scar issue. But I question whether or not the way we compensate, measure, higher recruit on board, train the way we try to incentivize, the way we manage or mismanage, what leaders care about because so much of their thinking is short term.
Because of the economic model, which is quarterly reporting, but why does a private company need to report quarterly? I mean, there is no imperative to do that other than so that they can show some fiddle on the valuation. But if there was a slightly different relationship with the investors and they'd give reports and updates, but they wouldn't have to report their financial position, they talk about what's going on, the challenges they're facing, the help they may need from investors. That's a much healthier way to deal with it. I would've thought.
Belal Batrawy: Yeah, but again, it's gonna, it's gonna take such fundamental change. That's why it's just like, you know, it will keep happening. Like, you know, most, most people don't know, for example, that VCs are very comfortable with having zombie companies in their portfolio.
Marcus Cauchi: Right.
Belal Batrawy: These sort of companies that, uh, so, okay. We, we already said most startups fail. People know that stat that's pretty easily Google search. But it's not just like startups fail or succeed. There's this middle ground that most people don't know about, which is called zombie companies. And that's how VCs talk about their portfolio. Where a company no longer achieves hockey stick like growth.
They're not on the triple, triple, double, double, double path. They kind of teeter out. They might be doing 10% growth or 20% growth, which is still okay, but it's not gonna get you the multiples evaluation that you want. And they essentially become zombie companies or the, the VC will keep them around.
Cause they're like, look, it's like, they're worthless. We're not gonna shut them down. They make money. They're at some kind of a state of stability, but the growth isn't there anymore. Right?
Mm-hmm. And so yeah, if they need a bridge round, maybe we'll support them with a bridge round. We'll work with them.
This company just kind of lingers on. So again, most startups will fail. The next common bucket will they'll become zombie companies. And then the very rare runs will exit or extremely rare will IPO. And that's sort of the, the, the triangle of, of outcomes that are happening. And so, you know what you're describing Marcus, like, it all makes sense, but it just, it would require a lot of changes to the model that I don't think people are willing to do.
Marcus Cauchi: Well, I think the way to eat the elephant is mouthful by mouthful for, uh, want of a better cliche. And I think what we need to do, so one, one of my goals is to help eight companies get to that billion dollars without sacrificing their values, building sustainable companies built on strong fundamentals. And to do so largely through organic growth.
And if they do go for funding, it's on their terms. Now, if we can prove that, then we don't need the entire market to move. We just need a few.
Belal Batrawy: That's true. That's true. Yeah. That's fair.
Selection of the Founders
Marcus Cauchi: So don't, don't try and fight the don't try and fight the war, fight the battle and pick the battles you can win. And this is why selection of the founders is so key. Because they need to be people who have high drive and ambition, but the intellectual humility to take direction, invite in, help.
They need to be people who will surround themselves with a diverse group of people who will challenge them and they need to have the patience to build that business well.
Belal Batrawy: Right. The right moral fiber. Yeah. Right. Yeah.
Marcus Cauchi: Yeah. And the right processes and systems and having a strategy and heaven forbid actually understanding the customer's journey through the customer's eyes. And finding where we can touch them and where it's relevant and appropriate to be in contact.
None of this stuff happens by and large. What you do is you come up with an ugly idea and then you go out and you bombard the market with lots of noise. And then you wonder why you get told to fuck off a lot.
It's depressing. I mean, do you ever think, am I mad? Am I this lone voice in the wilderness?
Cause there are more people, more and more people beginning to get it. But I, I just feel like there's some drunk old uncle in the corner.
Belal Batrawy: I've had it before. I'll tell you "Death to Fluff", part of it is, um, "You're not alone and you're not crazy for thinking it's wrong" as part of the motto of "Death to Fluff" and it has helped a lot of sellers, um, hearing that tell you're not alone and you're not crazy thinking it's wrong. 'Cause that's, that's a mistake.
When you start thinking your situation is unique or special, it's not. Every seller's had their commission check, played with every, seller's gotten a comp plan that doesn't make sense. It's going to happen. If you stay in this business long enough, you're not alone. And you're not crazy for thinking it's wrong.
And that helps a lot of people just knowing that. So listen, Marcus, my apologies. I have to go.
How, how can people get hold of you?
Belal Batrawy: Me too. How, how can people get hold of you?
The best way is my newsletter. So deathtofluff.substack.com. That's a great place. I do read the responses that people send in the newsletter and on LinkedIn, I'm posting daily on LinkedIn, um, this sort of sales advice, join the conversation.
And definitely follow Belal. Belal Batrawy thank you.
Thank you so much, Marcus. My honor.
Marcus Cauchi: This is Marcus Cauchi signing off once again from The Inquisitor Podcast. If you wanna get a hold of me, email@example.com. Bye-bye.