On Fear and Leadership: Product to Sales CTOs & CEOs

**Sonal Chokshi** (0:00)
Hi, everyone, welcome to the a16z Podcast. I'm Sonal. And in this episode, part of our ongoing Founder Operator Series, which you can find more of at a16z.com/founderstories, is about founders wrestling with how to evolve their roles from product to sales, and the question of bringing in an external CEO or not. The conversation took place as a hallway style chat and features a16z general partner, Martín Casado, who co-founded and was CTO of Nicera, and shared his own journey, lessons learned and advice for founders at a16z.com/externalceo.
And then the voice you'll hear after both of hours is Armand Dadgar, the co-founder and CTO of cloud infrastructure automation company Hashicorp, which enables enterprises to provision, secure, connect, and run any infrastructure for any application.
And while the two share their own journeys, our conversation is really more broadly about the phases that all leaders and startups go through, though they may end up in different places. In this discussion, we touch on everything from managing one's own psychology to managing specific tactics, discuss swim lanes and what enterprise sales means for CEOs and more. But we begin by outlining different mental models for describing different phases of leading a company.

**Martin Casado** (1:22)
So, I feel like leaders and startups go through three phases. And startups require three different types of leadership phases. The first one is a product phase. So, if you're going to be a leader of a startup early on, like you have to be a product leader. And your goal is to find product market fit, which is syncing up a technology and a set of technology trends with a user and a need. And so, you have to be kind of piped into the nervous system of the technology, of the tech trends, and of the users, and how they use it, and of the problem domain.
And if you're not piped into that nervous system on both sides of that, especially in core infrastructure, like Armand and I are both core infrastructure geeks, then I don't think you can lead the company correctly. So, the first phase is the product phase. The second phase is the sales phase, which is now you've got product market fit.
Over time, the economics of a company come down to go to market, because that's your variable cost, right? R&D becomes this kind of sub-linear cost, and then to get more customers, you need to spend more money. That drives your margin, which drives your valuation, that's go to market. And so, if you don't understand how to do that go to market and becomes a sales leader, like you kind of miss on that stage.

**Sonal Chokshi** (2:32)
What did you mean by the R&D cost trade-off of variable cost? I actually did not understand what that meant.

**Martin Casado** (2:37)
Yeah, so this is in the spirit of what is the most important thing to accomplish very simply in each one of these stages. So, in the first stage is finding product market fit. The second stage is getting a repeatable sales motion in a way that's solvent and has good unit economics. And the reason that that's so important is, if you look at the valuation of a company, the valuation of a company is driven by growth, by margin, probably by things like net dollar retention. Those are the numbers that feed directly into the valuation, and those are driven by go-to-market.
And the reason they're driven by go-to-market is because that's a variable cost. It's a cost that you have to keep reoccurring in order to grow.
Engineering, on the other hand, especially in software, in order to bring on that next customer, you don't necessarily need another engineer because it's pretty cheap to replicate bits, right? So engineering tends not to scale linearly with the customers, but go-to-market does.

**Sonal Chokshi** (3:38)
So the more salespeople you have, the more customers you can get.

**Martin Casado** (3:41)
Exactly, so you normally have relatively capped productivity of sales reps. It's very hard to increase that. So to get more dollars, you get more salespeople, or you start to do clever things with indirect sales channels. But that will drive your valuation. And so it's just very important to get those foundations right.
And then the last stage is an operation stage. And the operation stage is you're trying to get something to scale, and now you've got all these operational challenges. Like you go from a single product company to a product portfolio company. You start engaging the channel. You start engaging maybe these big partnerships. And so it's a lot more of the mechanisms of running companies or multiple companies that come into play.
And so I think as a leader, you have to step up to each one of these stages, and then you either have to make the transitions to these stages, or you have to bring in the people that know how to do that.