SaaStr Podcast #227: Alexandr Wang, Founder & CEO @ Scale On Why TAM In The Traditional Sense Barely Matters


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Alexandr Wang is the Founder & CEO @ Scale, the startup providing high quality training and validation data for AI applications. To date, Alexandr has raised over $23m with Scale from some of the best in the business including Index, Accel, Y Combinator, Dropbox’s Drew Houston, Justin Kan, Thumbtack’s Jonathan Swanson and more. Prior to founding Scale, Alexandr was a Tech Lead at Quora, directly responsible for all speed projects and before that a software engineer at Addepar responsible for building and maintaining financial models. In Today’s Episode We Discuss:
  • How did Alex make his way into the world of SaaS and come to found Scale? What were some of his biggest takeaways from seeing the first hand scaling of Quora and Addepar?
  • Why does Alex take the contrarian view that “TAM in the traditional sense barely matter”? What two characteristics of the market should founders really look examine? How does Alex approach the element of market sizing? Does he prefer top down or bottoms up and why?
  • Why does Alex believe that you must invest in customer success before you think you need it? What were the benefits for Alex of investing early in customer success? Why does CS over sales ultimately drive the growth of your company? How does one know when is the right time to hire their first in customer success? What is the ideal profile of this candidate?
  • How does Alex think about the integration of customer success and product teams? Why is it crucial from the product perspective that founders pick their first customers well? How can your customers drive your product decisions? How can one ensure to be customer informed and not customer driven?
  • Why does Alex believe that in the early days it is not important to focus on the size of the deals you are signing? What should founders be focusing on with these early customers instead? When is the right time to flip the switch and opt for value extraction as a more primary objective? How does Alex respond to the fact that VCs often look at these first customer deals as an indication of the size of the pain point you are solving?
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Harry Stebbings
SaaStr
Alexandr Wang Transcript: Harry Stebbings: You are listening to the official SaaStr podcast with me, Harry Stebbings. I would love to hear your thoughts and feedback on the show and you can do that on Instagram @hstebbings1996, with two B’s. It would be so great to see you there and I really do always love to hear your thoughts and feedback. Harry Stebbings: However, to our guest today, and I’m very excited to welcome Alexandr Wang, founder and CEO at Scale, the startup providing high quality training and validation data for AI applications. To date, Alexandr’s raised over $23 million with Scale, from some of the very best in the business, including Index, Accel, Y Combinator, Dropbox’s Drew Houston, Justin Kan, Thumbtack’s Jonathan Swanson, and many more incredible names. And prior to founding Scale, Alexandr was the tech lead at Quora, where he was directly responsible for all speed projects and before that was a software engineer at Addepar, responsible for building and maintaining financial models. I do also want to say, a huge thank you to the wonderful Jon Dishotsky and Tim Junio at Qadium for the fantastic question suggestions today. I really do so appreciate that and many mojitos on me to thank you. Harry Stebbings: However, you’ve heard quite enough from me, so now I’m very, very excited to hand over to Alexandr Wang, founder and CEO at Scale. Harry Stebbings: Alex, it is absolutely fantastic to have you on the show today. What can I say? I’ve heard so many good things both from John Deshotsky and from Mike Volpi so thank you so much for joining me today Alex. Alexandr Wang: Yeah, thanks for having me. Harry Stebbings: Not at all, but I’d love to kick off today Alex with a little bit on you. Tell me, how did you make your way into the world of startups and SaaS and really come to found Scale with that aha moment? Alexandr Wang: Yeah, I grew up in Los Alamos, New Mexico. Both my parents are weapons physicists, actually. After high school I actually came out here to the valley to work. I worked at a couple startups, Quora and Addepar because it was, the tech industry was just the most exciting thing I could be doing. After I worked out here for a couple years, I decided to go back to school. I went back to MIT, was doing machine learning research and then I sort of got antsy. I really wanted to be building things, really wanted to be building products and so I knew I wanted to start some company. I was trying to figure out the pain points that I had as a developer and one of the big pain points was to build any machine learning, getting data was the number one hurdle or the number one barrier that you come across. Alexandr Wang: And so, decided that that was as good idea as any. I went through YC and that was sort of the start of this journey about two and a half years ago. I went through Y Combinator, raised our series A from Accel right after that, grinding for a couple years. Raised our series B from Index and the rest is history. Harry Stebbings: What an incredible journey it’s been, though. I do have to ask, though, Alex, you mentioned some great companies there in Quora and Addepar in your early days. I often get asked by kind of emerging grads, I’ve got three options, I could start a startup, I could join a high growth company or I could join one of the large kind of FAANG, so to speak, Facebook, Amazon, Apple, Google. So tell me, what would your advice be to this grad, given the experience that you’ve had? Alexandr Wang: Yeah, I think your first experience should be at a high growth startup that is winning. The reason for that is a couple things. I think first, you want to see what winning looks like. Even though the FAANG companies are winning, you don’t really know what’s letting them win. You don’t really see what it looks like for them to win. And then the second thing is, at one of these emerging startups, you’ll actually have way more power and way more impact and influence than you would at a large company and that’s really important actually. Because you have so much influence and so much power, every change you make you basically get addicted to this sense of like, oh, I can actually have an impact. I can actually really influence the path of this company, and that’s really important if ultimately one day you want to start a startup because that’s the mode you have to be in. My recommendation is join a high growth startup. Harry Stebbings: I love it. I will be absolutely using that forevermore. I do want to start this out, Alex, on a kind of top down list. With the market itself, and I’ve interviewed over 2,500 VCs if you can believe it. 90% say they look for these huge markets but we’ve chatted before and you said to me, TAM, in the traditional sense, barely masses. Can I ask, Alex, why do you take this contrarian stance when it comes to the importance of the size of the TAM. Alexandr Wang: Yeah, when we started and even when we raised our series B, I think for a lot of VCs, they would sort of ask about our TAM and it would be, we would be able to explain it, but it wouldn’t be this massive, tens of billions of dollar TAM. It was smaller but it was growing very, very quickly. It turns out, what matters actually more than that is that we’ve been able to dominate that TAM and because it’s growing really quickly, our company’s growing really quickly along with it. Alexandr Wang: I think one of the big things is if you have a big TAM, that just means you’re playing in an established market and what isn’t really revealed by if I just compute the TAM and say, “I’m playing in this TAM,” it’s not really clear how likely is it for you to actually dominate that TAM. How likely is it for you to actually capture a significant portion of it? That ends up being the most important thing. Much more so than the size of the market. As long as the market’s growing quickly. Alexandr Wang: If you look at some–I think Uber’s C pitch stack, or their A pitch stack or whatnot, they say the TAM for what they’re doing is $4 billion and they’re about to IPO for a $100 billion. Everybody gets it wrong their early days. Alexandr Wang: Airbnb, their TAM, when they were starting was literally zero. Maybe not zero, but very, very small of sort of this home sharing thing. And now, it’s a $30 billion company. Alexandr Wang: It’s sort of like, if you focus on the TAM that just means you’re playing in an established market and then you’ll miss the best ideas and you’ll sort of ignore the fact that the thing that really matters is the market that you’re in growing and you have a chance to win it. Harry Stebbings: I think the most interesting element there is do you have a chance to win it in the competitive element and landscape? Could I ask, how do you think about competition today? I have different views of embrace it. You have others that say, “Row your own race.” Others said, “Monitor it maniacally.” How do you think about competition and the right way to approach it? Alexandr Wang: Yeah, it’s a good question. I believe more in the ignore it and row your own race mindset because the reality is, most startups don’t die because of competition but they die by suicide. Another way to put it that I think is good is, startups die of indigestion, not starvation. And that’s because the actual risk for a startup is, oh, we hire a bunch of the wrong people and that kills the culture and that kills all productivity and kills our ability to win. Or, hey we ended up being focused on the wrong things and that ended up setting us back quite a bit. Alexandr Wang: It’s very hard for any business in the world to catch up to a startup that has a lot of momentum, is growing quickly, and has an incredible culture to be able to continue growing very quickly. That’s a very hard thing to actually catch up to. And so you focus on rowing your own race and just maximizing your own growth rate and growing as quickly as you can, then you’re going to be in a great spot no matter what. Alexandr Wang: That’s my suggestion. The other important thing, though, is it helps when there’s not a very threatening incumbent in your market. It would be relatively threatening I think to compete with Uber and Lyft today in the ride sharing market. And so I think it helps to have an incumbent that’s a little bit laggier. Harry Stebbings: I totally agree with you in terms of that concern in terms of competing with competition. I do have to move one layer deeper, though, now into really the customers that drive the companies in these markets. When we were speaking before, you said to me, “Invest in customer success earlier than you think you maybe should.” Can I ask, what’s the personal experience here for you investing in customer success that leads this thinking? Alexandr Wang: Yeah, I think in the early days of a startup and this was certainly true in the early days of Scale, we were so focused on growth that we just wanted to be getting more customers all the time and that was sort of the number one focus. Once we got a customer it would be like, okay, one down. Let’s try to get the next customer and the next customer and the next customer. But, I think what I didn’t realize at that point, it’s actually far more important in the long run, that you build a culture where your customers are supremely, supremely happy and supremely, supremely excited about what you’re doing. Alexandr Wang: After you get your first customer, your first two customers, it’s actually way better for your next hire for example, for there to be a customer success hire versus a sales hire because the reality is the sales piece is important but it’s far more important that you just build this culture of your customers loving you. What we noticed is, once we did that, once we really started investing in customer success and customer centricity in the company and embedding that into the culture, we were able to grow far faster because our customers would be so happy, they would tell all their friends. Those friends would come to us and say, “Hey, I’ve heard great things about Scale. Let’s try this out.” Alexandr Wang: It’s kind of unintuitive if you haven’t seen it before, but I think a lot of SaaS companies really should embody this and many of the fastest growing do, where it’s the truth that if you invest in customer success versus sales, then you will grow faster. Harry Stebbings: Listen, I totally agree, especially in terms of turning those kind of early customers into a primary acquisition channel. I do agree with you there. The next logical question for me is, okay, we need to invest in customer success earlier than we thought, what does that profile look like for the customer success rep or manager that we want to add? Is it the Salesforce logoed rep, is it someone who’s never done it before? What does that look like to you? Alexandr Wang: Yeah, I think ultimately customer success in startups is actually incredibly difficult because everything’s breaking all the time. A customer will have a lot of demands and the startup will often move extremely, extremely quickly. Sometimes the startup can seem very chaotic and so you need to really make it seem stable to the customer. It’s a pretty difficult function and I really would not hire somebody who comes from a big company, who may have done customer success there because the reality is, at those companies, customer success is much more cookie cutter and it’s on top of a much more stable platform. Alexandr Wang: I think the profiles that actually are quite good are people with consulting backgrounds, in particular, because a lot of these consulting firms like McKinsey, Bain, BCG, they go into these large companies, the Fortune 500s, to provide services and the Fortune 500s, everybody within the Fortune 500 always hates the consultant and the service the consultants is providing is always nebulous and unclear. They get really good at dealing with these very uncertain environments and building relationships with customers even when they’re sort of viewed as the adversary. Alexandr Wang: I think those are really strong backgrounds for early customer success hires at a startup. Harry Stebbings: I love that in terms of that background and how consultants maybe have experience ideally suited to it. I do want to ask the next logical question for me is, okay, so now we have the customer success is like primary importance. We have that profile. In terms of that kind of collaboration with the wider team, I’m always fascinated by the integration and collaboration between product and customer success. How do you think about how an if customers should impact product roadmap? Let’s start with that. Alexandr Wang: Yeah, I think that your early customers in particular, are extremely influential in your product and you should basically build a lot of what they ask you to build. A lot of this is because one of the real failure modes you’re going to get into as a startup, I think the number one failure mode that a lot of startups get into is that they’re sort of, they’re too in their head about the products that they build and so they’ll be very principled and try to have a philosophy around everything they’re building and they’ll turn out, they’re just wasting a lot of time building stuff that nobody wants. Alexandr Wang: If you’re very focused, one other thing I really believe is, earliest on in a startup, you should really pick your first couple customers very well because no matter what, these first couple customers are going to define your product roadmap for the next while. You should really make sure to pick customers that you think are representative of where either the future is going or a much broader set of customers. And then you should just totally listen to what they ask you to build and build those things. Alexandr Wang: There’s a bit of nuance there. You want to make sure to question them and make sure you understand the pain so you can maybe come up with a better solution to the pain but in general, your roadmap should be much more dictated by your customer than anybody else. Harry Stebbings: So many things for me to unpack there. First one that I want to unpack is you said kind of about insuring building what people want. In terms of the AB testing and the iteration phase, how do you determine once a product is released, whether it’s a hit or it’s not a hit and it needs to be addressed. Kind of what’s that right amount of time between that iteration versus success validation phase? Alexandr Wang: Yeah, that’s a great question. I think there’s a couple snags for these products. I think the first snag is getting customers onboarded onto the products. That’s a real snag. You want to just get rid of any possibility about that by going to your customer, teaching them how to use it. Literally telling them in person how to use it early on so you don’t risk that at all. And then you just honestly ask your customers. I think you can look at the usage metrics and you can look at your revenue metrics or whatnot and sort of maybe try to observe it but the reality, you just ask your customers, hey how is it? Alexandr Wang: One thing is, if you invest in customer success and you build a trusting relationship with your customer, they’re going to be very open with you. That’s sort of gold right there is, hey, we built this thing. Do you actually love it? Or is it horrible or whatnot? And then just fit based on whatever your customers are saying. Harry Stebbings: Can I ask, it’s always a big question for me, and it’s the Henry Ford statement, “If I built what customers asked, I would build a faster horse.” How do you think about being kind of customer informed but not customer driven to the detriment of the product? Alexandr Wang: You definitely need to hear the pain first. Try to really dig in on what the pain is and then based on that pain, come to your own conclusions about okay, I think this solution is probably the best one. I wouldn’t focus on the customer solutions although again, if you do pick your first customers wisely then oftentimes they actually have very good solutions for a lot of these problems but you want to focus on the pains. And then I think the Henry Ford quote is great and all and that’s really how you get discontinuous innovation and whatnot but usually on the product side, you have a couple big bets. You can’t produce something that’s so out in left field that nobody knows how to use it, nobody really understands what it’s used for et cetera. You have a couple big bets to be innovative. For the rest you really want to make sure that’s it’s intuitive and it just solves the customer’s problem, plain and simple. Harry Stebbings: No, I do agree with you in terms of not being too fronty and too misunderstandable. I do want to drill one layer deeper still though into the deals that we actually agree with these customers before we get them onboarded. In today’s world, we both know that the large ACVs are hailed and respected but you mentioned to me before, don’t worry about your deal sizes at first. What makes you say this, Alex? Alexandr Wang: Yeah, I think all of these things are about, don’t really overthink it and over optimize it early. The only thing you should be focused on early is get customers who absolutely love you and know that they will pay for it but don’t be worried if they don’t pay too much very early on. I think in sort of the path of scale, I think our first deals were like a couple thousand dollars and they were really, really measly. And then as time went on and as we grew, they grew to be larger and larger and as you hired a sales team, they got to hundreds of K and then we closed a couple million dollar deals. It’s one of these things that is really evolving with your customer base, with your customers, with your team. Alexandr Wang: Early on, it’s you just shouldn’t be too worried about it. It’s really hard to predict based on your initial product, how much you’re going to be able to charge for your product and how much people are going to be willing to pay. Just get in the door with customers. Start getting their feedback. Start getting people to use it. Start getting people to love it and then over time, that’s when you optimize your pricing and that’s when you optimize your ACVs and that’s when you sort of try to optimize your revenues. Alexandr Wang: I think there’s a bunch of great examples of this. Segment for example, they started as an open source project and then when they started charging for it, they’re one of the companies and I recommend a lot of companies do this, but they sort of doubled their pricing, every contract until people said no. You have time to do stuff like that and you have a lot of customers to be able to experiment with stuff on that. But again, in the early days, just focus on the product, focus on the customer happiness. Harry Stebbings: I do totally with you there in terms of that customer centricity. As you know, I speak to many VCs though and I was speaking to one this morning and he said, “I just turned down a deal because I was looking at the sizes of their ACVs in the early days and to me it just signified that it wasn’t that much of a pain point because they were two, three, two, three, two, three grand. And so it wasn’t that compelling and I didn’t know if they had the ability to scale them over time.” Harry Stebbings: How would you respond to a founder who’s concerned about attaining the seed or series A, where investors are drilling in on those early numbers. Alexandr Wang: Yeah, one thing I’ll say is, VCs get it wrong all the time. All the time. VCs will miss real big winners and the best companies. I think if you go to most of the best companies and you ask about their early rounds and how difficult those were to raise, they’ll generally say that they were relatively challenging. Obviously, Airbnb’s YC story is very infamous. Robinhood, when they were raising sort of their early rounds is infamous as well. Alexandr Wang: VCs will have one perspective on your business but you should form your own opinions because VCs do get it wrong all the time. The thing that I would say is the thing that’s far more powerful for a VC to hear is that customers genuinely love the products versus your financials or ACVs, particularly the seed and series A stage. I think it’s about when they do the ref call with the customer, is the customer just absolutely in love with the product and absolutely, totally excited to be using the product and thinks it’s the best thing since sliced bread for them. Alexandr Wang: And then, when they sit down with you and they ask you about, okay, but what about these ACVs? Or what about, how are you actually going to build a business off of this? You have to have a story there. You have to have a plan of like, oh, we actually think that people are willing to pay a lot more for this. These are the data points that signify that. Or, hey we think we can actually blanket the market and with really low customer acquisition cost. One or the other. You should have a story, but what I generally see is investors are far more moved by just customers who really, really love the product. Alexandr Wang: That’s actually, that’s how Mike Volpi found us for our series B is that, he had heard from some of our customers how much they loved our product and that was primary hook and that’s the primary reason he reached out and we got in touch with him. Harry Stebbings: Can I ask, what was the inflection point for you going, okay, we’ve solidified that kind of core customer base. They love our product, now we need to actually start really kind of engaging with true value extraction and from the value we’re creating. When was that inflection point? And when should founders think, okay, we do need to flip the switch now and optimize for pricing. Alexandr Wang: Yeah, I think for us it was once we got a handful of customers and we felt they were very happy. Maybe in autonomous vehicles, after you got say three customers and they were very happy and we felt they were all very innovative companies. We sort of told ourselves, okay, this just means that everybody wants what we have. We’ve built a really great product and I think now we can focus on actually operationalizing the business out of it. Alexandr Wang: Importantly actually, it was after we had hired our first sales rep. Initially when we hired our first sales rep and he was selling the product, the directive was actually, don’t worry as much about pricing and just focus on getting these great customers and getting them in the door because I didn’t want him to be too focused on the value extraction before we even had enough signal that we were building the right thing. Alexandr Wang: Really was after we had a couple very strong customers who really loved the product and we had our first sales rep already there who sort of provided some signal to me, he said, “Hey I think we can be charging more for this product.” And that’s when we really turned the switch. Harry Stebbings: I love it. And what a switch it’s turned into. I do want to want to finish there, Alex, on the quick fire round. I say a short statement and you give me your immediate thoughts. Are you ready to rock and roll? Alexandr Wang: Yeah, ready. Harry Stebbings: Tell me, what quote or motto do you most frequently revert back to? Alexandr Wang: Yeah, I think the one that’s best is Steve Job’s quote which is, it’s part of his talk at Stanford, “You can’t connect the dots looking ahead, you can only connect them looking backwards,” or something like that. I think I butchered it a bit. But I think it’s one of those things where it really inspires you to be ambitious and just go for it all the time and do what you love and follow your heart because I think that’s ultimately the most important thing. And then when you look back, all these things will be very, very useful. Harry Stebbings: Tell me a moment in your life, Alex, that’s served as an inflection point, maybe, and changed the way you think. Alexandr Wang: Yeah, I think one of the big ones was when I was at Quora, we had these hackathons. We were building products and during two of these hackathons, the sort of hacks that I built ended up sort of getting adopted by the product roadmap and launched on Quora. I think those really made me feel very powerful as a builder. It made me think, wow, if I can build something in a week and then all of a sudden hundreds of millions of people are using it, then I can do anything. Harry Stebbings: I love that and what an experience that must have been. Harry Stebbings: What’s the hardest role to hire for today, Alex? And why do you think? Alexandr Wang: Interesting question. I think the hardest role to hire for today is actually marketing and that’s because I think the world of marketing is A, advancing very quickly. I think it’s gone just in a couple years from being more brand and corporate marketing driven to being right now, very technical and metrics driven. And it’s also so specific to the product, what good marketing looks like. And so you need people who are really, really creative. Harry Stebbings: As a content creator, I couldn’t agree with you more in terms of the speed of development of the marketing market. Harry Stebbings: Who do you think is crushing it in the world of SaaS today? And why Alex? Alexandr Wang: It’s a good question. I certainly believe in all the API companies quite a bit. The Plaid, well the Stripes obviously. Stripes, Twilios, Plaid, Checker, et cetera, of the world, I think the API companies are credible because they can grow so quickly and they can become such important infrastructure for their customers. I’m really inspired by all the API companies. Harry Stebbings: I couldn’t agree with you more, I have to say. I’m a massive fan and lover of Clearbit as well. Harry Stebbings: Final one, what do you know now that you wish you’d known at the beginning of your journey with Scale? Alexandr Wang: Honestly, I think one of the big things is just that a lot of people will get it wrong at the start. You could over rotate on what people tell you when you first start the company and you can over rotate on what people tell you as you grow it. But the reality is, nobody really knows what you’re going to be able to accomplish and nobody really knows about where you’re going. Everybody’s just guessing. And so don’t be too focused on the stuff that everybody tells you. Be focused on, make sure that you really believe in what you’re doing and go from there. Harry Stebbings: Alex, listen, as I said, I heard so many good things both from John and from Mike. It’s been such a pleasure to have you on the show today and I really appreciate you taking the time. Alexandr Wang: Thank you so much. This has been great. Harry Stebbings: My word, what a company. And I want to say a huge thanks to Alex for giving up his time today to appear on the show. If you’d like to see more from us behind the scenes here at SaaStr, we would love to welcome you. You can do that on Instagram @hstebbings1996 with two B’s. It really would be great to see you there. Harry Stebbings: I cannot thank you enough, as always, for tuning in. I can’t wait to bring you another fantastic interview next Monday.   The post SaaStr Podcast #227: Alexandr Wang, Founder & CEO @ Scale On Why TAM In The Traditional Sense Barely Matters appeared first on SaaStr.

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