The Science of Scaling - with Mark Roberge, Stage 2 Capital

**Ray Rike** (0:00)
The following Metrics that Measure Up episode is from SAS Metrics Palooza 2023 During this three-day virtual event, top industry leaders shared best practices, insights and ideas on how to make better metrics-informed and benchmark-validated decisions. You can view every SAS Metrics Palooza 2023 session at benchmarkit.ai/sas-metrics-palooza-23. Now on to today's show.
It feels so privileged and honored to be able to introduce our next speaker, and it's Mark Roberge. Mark is the co-founder of Stage 2 Capital, the industry's leading go-to-market limited partner, a venture capital firm, which I'm sure Mark will talk a little bit more about. He's also a senior lecturer at Harvard business School, and was the founding CRO at HubSpot, and really revolutionized how SaaS revenue leaders were using Metrics to inform their decision-making. With that, I'm going to give the stage to Mark. Thank you so much, Mark, for being the speaker today.

**Mark Roberge** (1:20)
Yeah, you bet, Ray. Thank you for having me. Hey, everyone. Excited to spend 25 minutes or so together.
For today's speech, The Science of Scaling, I need to go back about 10 years. We had completed the IPO at HubSpot, and I had been there since day one, so it was really tiring. It was exciting but tiring, and I needed a break. I set out to take one. serendipitously, I was called and approached by Harvard business School right around that time to join the faculty, and they were looking for a buildout of sales curriculum for the MBA program. I thought, wow, what a remarkable way to rest more obviously than running the global sales team, but not having to be on a plane all the time, I like that stuff, but also being able to give back, being able to give back to the ecosystem to have some time to reflect and think, and do it in a structured way at a very honorable place to do it. And so I did that for about five years before we started Stage 2 Capital. I can tell you about that a little later. Not only did I teach some brilliant people, but I also spent, I chose a different company, a different startup every quarter to help. I joined their advisory board or their board, or I invested in them, whatever it was. And I spent about a day a week throughout that quarter. And it was largely around when they were professionalizing their first sales organization. And I did that over five years and a couple dozen folks. And as is the case in startups, some of them failed, some of them flatlined, some of them had great success, companies like Asana and Drift and VTS and Salsify and others. And it was the first time in my career where I wasn't 80 hours a week on one company, but I was between my students and these advisory gigs, I was touching 100 startups a year. And it gave me a lot of sort of data points to reflect on where people stalled out, where failure originated. And those reflections kept coming back to two strategic questions that I found boards, founders, senior leadership teams were not being as thoughtful as they could be around. They were making bad calls. And those were when to scale revenue and how fast.
You know, just like if you if you think about that, when when should we scale? You know, I know a lot of you are in the room have been at startups. You've been asked to come in and run revenue teams. You are founders. Such a critical question is like, when is the moment when you're going to go from, hey, we're building our product, we're building our minimal viable product, we're recruiting design partners, we have initial customers, we're doing founder selling, we're trying to prove that it works. And now we're ready. Meaning like we're ready to commit to an annual revenue line. Like we're going to go from half a million to two million next year or something. And we're ready to add sales. Like we're going to add salespeople like now. That's a key decision.
And I think there's some pretty soft answers out there. You know, like I think the almost everybody says product market fit. I think that's a great answer. Yeah, from my research, product market fit originates back to like Eric Rees in the early part of the century, Steve Case, and like there were Eric's work on the Lean Startup, and that was a groundbreaking moment for entrepreneurship. But what's funny is even though that's such an important term and breakout framework for us, when you ask 100 entrepreneurs what product market fit is, you get 100 different answers. So that's a little silly, that the answer to this critical question is vaguely defined. I would say half the people talk about product market fit as a customer acquisition or revenue acquisition milestone, like a million in revenue, and I'm sorry for being blunt, but I fiercely disagree. I mean, I think someone could sell ice to Eskimos and get 200 million in revenue because they're great at sales. It doesn't mean Eskimos need ice. It just means you have market message fit or you're a shark of a seller. But the better definitions of product market fit have a lot more to do with creating value consistently for your customer. Those are where the definitions, the great definitions I think need to reside. Now, you've got a really good one out there with Sean Ellis, who says, if you were to survey your customers, how disappointed would you be if your product didn't exist? Not disappointed, disappointed or very disappointed. He wants to see 40 percent or more very disappointed. Now, we're talking. It's quantified. There's a clear line and it's rooted in at least the value perception of the customer. I just think I'm not quite there with it because surveys are just known for positives. There's a thing in product management called the mom test where people don't like to hurt people's feelings, and they'll want to tell them what they want to hear, even though they might not honestly be feeling that. So for me, when I want to say like, when you read a scale, I think the best, yeah, product market fit is great, but I like to define product market fit. I like to root it in customer retention. because I don't think there's a lot of mom test in there. I don't think there's a lot of people like, yeah, I don't really like your product, but I'll renew anyway. I don't think there's a lot of that happening. I think that's a defining moment that's extremely quantifiable, is someone bought your product and they decided to almost like rebuy it, like renew it, whether it's a month later, a year later or whatever. Now, the problem with that is it's such a lagging indicator. I don't honestly advise people to use annual contracts in the early part of a startup, but a lot of people do. And even if you don't, like many folks will take many, many quarters to decide whether or not they're renewing or they're going to cancel. And that could be a significant lagging indicator to what we're really trying to get at is, is your product delivering on the value that you promised and you envisioned. And furthermore, like we just don't have that time in startup, in the startup world. We don't have like six months, nine months, a year to wait. We need to know as early as possible. And so I advocate the creation of a leading indicator of retention. This is a metric that if it, if this behavior, this customer action or behavior were observed in say the first month of a customer's tenure with you, that they're going to be with you forever. And if it isn't, that probably going to cancel pretty quickly. So I feel like that's an important number. And that's like, it's not something I can say like 80% of the time. This is about like daily active usage. I can't, there's no universal answer on these. I find this to be like an opportunity, a moment for true creativity in entrepreneurship, something that founders actually love, is to not have the exact blueprint laid out for you. I'll try to codify it a little bit for you, where it's P percent of customers do E event every T time. So it's kind of tries to boil this definition down to three metrics, three variables. And I can give you some industry examples that are relatively well documented. So Slack, 70 percent of customers send 2,000 team messages every 30 days.