Arthur Nobel - B2B SaaS Investor, Associate at Knight Venture Capital explains how to acquire your first customers in B2B field and how to present those customers to investors. We discuss B2B fundraising and international sales for B2B SaaS startups.
Arthur's LinkedIn: https://www.linkedin.com/in/arthurnobel/
Knight Venture Capital: https://www.knight.vc/
YC library: https://www.ycombinator.com/library/
Office hours with Make it Studio: https://make-studios.typeform.com/to/bUvZoSwl (it's extremely helpful, trust me).
And today's a guest speaker, we have Arthur noble associate at night to venture capital and this happens.
It will mean we talk about business to business type of Serbs and specifically how to scale them how to acquire your very,
very first customers and how to present to the funds later on so forth or a lefty called by you giving us some background on yourself.
And on Knight venture capital, so thanks thanks for having me yeah. To introduce myself.
I'm I'm author, as you saw the work at night, venture capital, and I'm a founder as growth hack or direct investor may be a unique combination to a growth hacking background. Previously a work for the Internet.
That's I would say, you're well, known incubator afterwards, worked for two feces, then started my own company called Flex batch aimed on that a remote working lifestyle proof to be told.
I was a bit too already through the markets since then I worked shortly as a growth hacker and strategy consulting before moving back to a venture capital area.
Got it so let's talk a little bit more about venture capital. What doesn't invest in generally.
Oh, over that pretty standard venture capital firm, in terms of the model originally became from incubator models. So we have a handful of expertise, however, currently behalf as well.
They meet with the standard model, just like what you're also well, known, like, us circle, yas and androgen heartbeat fish world.
We invest in B, two B, software companies refer off the hundred K to four and it's a monthly recurring revenues that have a replicable go to market approach. It's really our focus.
We invest typically say that this is a round in Europe, and the also occasionally investing us last week we finished an investment together with TGV and us.
So this is definitely something we're open to receptor agnostic, but something really then to focus at these low towards distribution models, since we understand that best.
And we basically mean, sell something from your home either, via via phone of our digital channels. We're generally and suggesting what was more about night.
I would say we have strong metrics and growth focus. We have an operating background, so that's that's how we'd like to position ourselves.
Got it, so, first of all let's start by talking about getting to that point, we're actually net venture capital might be interested in investing in your company. So getting into that hundred thousand monthly recurring revenue is a pretty significant milestone.
So how do you achieve it? Let's start from the very beginning. How would you require your very first? Customer was recommendation on that.
So, first of all, when I have my own company Flex, that's something I've really got my hands around every time because it's I know it's it's a very big challenge to ask a question.
I would, I would say, just for for your listeners. I mean, first, of course, you have to validate that you are solving a problem with a solution that people like.
If that's the case, and you are just getting your first revenue and the answer really depends sort of, on the customer type that you have.
But if you have, like, an enterprise type of customer, it's totally different from, for instance, going for, to get you to get to your revenue. I would say in order to get your your first revenue center. True?
If if you have a functional enterprise type of clients,
I would say,
it's very important thing to into into already beginning, just to go through and network and get some logos, establish some trust in the trust relationship,
be able to test things out.
And only from there. You know, expanding via introductions and cold outreach, just the outreach when you are entirely new markets, but no track records. I've seen it's very hard.
I wouldn't say it's no go with it. It's insanely hard.
On the other hand, if you're like, more than a business as focused as, or even on enterprises, but we've no annual contract failures I'd say it's more than a five hundred dollars a month.
I would really go by online channels direct LinkedIn outreach product. Com, discourse is definitely something I'd recommend a referral campaign.
I think you have to rely less on your network, or if you focus on them yeah. On low touch, small types of businesses. Absolutely. So here, let's talk a little bit more about the cold outreach.
I think that's the most fun. And, I mean, I'm just curious part of this, the cycle. So if you're working with small and medium businesses, what's your advice to founders in terms of cold outreach?
Should they make a good or somewhat good research on each company that they try to get in touch with cold call them? Or should they email on the cold call or should they try to just email them multiple times? Or what's what's your recommendation on? That?
How can they just get that first contact with the, with the company?
Yeah, fair fair. Very good question. I will, I would say it really depends on the number of customers that you can target. So what I always used to do when it wasn't work with the Internet. I was doing sales myself.
I divided prospects saying that's a B and C categories to see what it wants to learn, be more to wants.
I, I like to have sort of, I could also lose them and the ace that were the ones I for. Sure. I wanted to close.
if you have a large pool of prospects to start, and you can burn down,
but you learn a lot from it,
but she would just have to reach out to I don't know how many customers that's after fifty or so you're pretty use to who,
what works what doesn't works and from there,
you can move up through the customers that you really like.
So, that's that's the first point in terms of closing a sale. What I would say is, I mean, having this growth hacking background. It's really about testing. What works for your channel kinda dependent on where your customers are.
That's why I want to target them. Let's say if you target the oil and gas sector to be more conservative industry, you might have to go. You can go to an event, whereas if it's more tech savvy industry, like yeah.
Marketing, for instance, yeah, you can definitely haven't aligned approach.
General concept I find pretty interesting is that Microsoft or Salesforce figured out it's close B to B s*** that you need seven and thirteen touch points in order to close to close the shell.
From that perspective, I wouldn't look only what General shoot your targets. I would rather think, like, well, these sort of the cadence of activities that they can set up with different touch points so that I can create trust.
And I'm from Derek close sale, not, you know, starting from gold, but that these were ready to be the warmed up.
Right, right, right. And it's just a quick follow up here on this question. I know there are a bunch of tools like hunters, but, you know, give you basically introductions to people at those big corporations, you know, with some executives, maybe, or something like that.
And you can actually buy them for plenty of money. Have you heard about any of those tools and would you recommend any them or should the founders, you know, do their own way in maybe cheaper?
Obviously, I haven't used it myself, so my my advice in that sense, it's limited, however, as a general rule of thumb I would say, like, in the very beginning, it's a, it's very important to try to do as much as possible.
Of course, you know, you can work with referrals here here and there and your own network. It's really about figuring out what customers like, you know, what's your best because you can also, you know, what you learn. That's a Nicole. You can put it on the website.
You know, it's sort of websites, coffee, those type of things.
I would generally say, try to do that at the very beginning and then if you want to scale up you, you can use this as one of your experiments to see how it performs compared to other activities. Right?
So, here, let's move onto the metrics.
Let's say you've already close some deals and you want to make sure that you understand which channels are the best for you and that you need to understand if you're a good fit for somebody sees what metrics does Knights venture capital look at specifically.
So, what we'll do find very important is that let's go to market model. We're scalable.
And maybe, like, I can explain that wrong, but just to focus on what what what we mean with that is that you really understands the drive in factors of how you generate revenue.
So, you know, so, to speak the into why of growth.
If you looked at actually what I learned from, from, from Boston, in the past, he was, he worked at McKinsey and well, the always dance is creating multiplications out of everything.
So, if if I know look to his business, and when we evaluate it, we try to right like a multiplication of the of the business model. And from there.
I mean, the example, I would get a few ways for, like, more like a product, less girls type of company and this way we, we looked like on how it's going.
So, one thing how you get your review for product led growth companies to following multiplication. It's like,
impressions that you Gatz and then,
it clicked for rates of people who see the impression then,
assigns to the website visitors then multiply that prior to conversion for a free trial and then convert to conversion rate of product qualified leads.
Then we multiply that.
We have to go to paid customer,
multiply that times,
two efforts or despise this against the conversion rate to an upsell that,
the full average order size that times,
lifetime in months and times you go a K,
coefficient and go for cintas use about.
Right there really to the backbone of how you're grow in a product led growth company. At the interesting thing.
if you look as an investor to it,
I first always look more at sort of business metrics and then it can dive into with my but just to give you an example,
those type of metrics are really look at the business and they dive deeper into it just to understand,
can they really scale and grow and do they understand their growth engine?
This is the essential multiplication because if you understand all these, all these metrics, but also the ship metrics Lotus.
You control them then you basically know there was a growth engine.
Right. So, let's get back to what you mentioned earlier, which is a basically scalable business model or scalable the thing that she promised to expand about. So, can you talk a bit more about that?
How can a founder claim that their business model is scalable? Yeah, I would say our, our theories did based on the book of Aaron Ross predictable revenue.
Definitely recommend to readers to check it out as well as the sequel.
David score from Matrix Partners, food developed also model scalable go to market approach that we used sort of the theories to define our own seven criteria.
Those are like, first school with a license to operate.
You have a product market fit and everything engine,
the intention product usage is there but that's I would say,
step number one step two is a company has to show and repeatedly attract similar type of customer.
So, if you attract small customers, very large customers, it's not really consistent. And it would say, you don't match that at that point.
And the third point is, has the company really built a label for, for sales think about the channels. You know, the processes, even like just trips.
That your company approaches, customers approaches our customers in assuming away.
Of course, you know, we understand that especially when ticket sizes are large, that some customization is in place, but there should be some consistency.
Like, a fourth point we look into is that's no longer can actually sell the products. And this is, I would say now, we get really close to what, like a replicable sales model because, you know, you see, founders are variety down.
They can sell, like, crazy because they really live and breathe the products.
But then they give it to over night to some other people and apparently, they cannot really sell. And this is a critical moment that would change the life of startup that even started to get to a hundred. And we're very impressed with what founders have performed.
But this just really relies just entirely on the founder or founders and that is something. That's yeah, we think that is another replicable model like an other aspect.
You look into this, if you have salespeople, and they can actually sell the product, if the company has shown that whether there's really consistency in selling, and if they reach their their quotas.
you mean here and delete for instancy predictability, and,
a number of opportunities being created,
or everybody sort of has the same quote on payments, or,
or at least our veterans to discover that it's not one or two guys running the show and the other three or five are basically just sitting there,
and that's really generating income.
If you deploy the money, you want to see that everybody can sell it. And and in the sort of consistent. Rick,
pretty much perfect and then our sort of two more points I got to mention and quickly,
sort of LTV C*** ratios,
it should be above three internal rates should be quite consistent but you want to avoid is that the company claims have very little sales model it's either super expensive to a direct clients so they sell too cheap or that's yeah,
correct clients but they will leave leaky buckets. And the last thing which I think is.
I don't see many companies measuring dates appropriately, but it's very important. If you have insight on the ramp up times and onboarding of new new chief, new sales people.
So, if it's even if you get a few people who can sell the product, but it took them like, a year to do show, even now invest a couple of million in a company. Yeah. I'm not sure if it's going to fly.
So you wanna see, for instance, is there a three or six months? Onboarding time? This new sales rep performs just as you underwhelmed from there and you can just go, kind of calculate out the company can grow.
If you deploy money.
Great yeah, that's a great definition of sustainable, scalable business models so pretty much everyone has to pull that and.
Let's move onto our next question here. Then project lead growth. You mentioned that a little bit earlier and to be quite honest. I'm not quite sure what it means is. Does that mean that basically people are referring your product to others?
And that's how gross, or what does that mean? I mean, it's a very vital part of product. That's Ralph. So that's that's definitely, like, in the right direction.
I will productive growth and,
everybody has a slightly different definition to it,
but I would say product growth is using your product as you should deliver,
like an amazing product experience.
And with that you acquire, you retain and you'll Excel customers. Really?
What's the difference is,
is that you have to experience your product first before day before they pay for it if you think about examples to make it a bit more tangible,
you can think,
for instance about Dropbox,
you experience the product first then.
True. As a freemium. And then you are actual, as you sell you up to.
two paid version and the same goes for Slack heavy now,
so usually there's a free version but if you want to you have full extensions,
heavy experience slack we feel it's a great product then basically,
they realize and Excel by thing it's basically like,
the standard plan,
the enterprise plan,
and the same goes for Joel right?
Right. Okay. Yeah, no, I understood that. And let's move onto going kind of backwards to to the sales cycle, and let's talk about European companies selling to us companies.
So, like, twenty percent of my audiences in Europe, and the other seventy five percent is us. So we have two sides here. And how would you recommend European companies selling to us companies? And what are the major mistakes that you see them doing their.
what I see in terms of mistakes is that European companies sending to the US, I mean,
I can actually give a give both ways also US companies to, to,
to the mobile,
what what is required companies will just things like, okay,
we've product market facing Euro,
we've got to go to market fits in,
Let's go to us and they just okay. Too small of a budget for, for going there. And they don't really realize that it just also takes time to build, build it up.
So, what they see here is that's the initial it takes long ones to basically have this at this inflection point. You can ramp up faster but that's something I see.
Companies then sometimes already a second thing is to set a seat.
Sometimes I think that they can realize the sales from from Europe. So, you know, to pick up the phone thing, let's close some American customers, you know, you have a meeting so you fly in you sell you go back and that's something.
I don't think she working. I think is very good to have, like.
And it's just for sure of course, for for future investors, if you're a European company, but also that you just have boots on the ground that definitely help you.
And then there's, of course, like, always this point of a culture difference in the setting.
I I would say, yeah, it's very important just to hire a local salespeople also with local payments schemes.
The funny thing is us, I would say the salaries for sales reps are then to be higher also variable pay is higher hoping to take into account.
So, you cannot come up with a European payment scheme for Raffles for sales reps. And,
another thing is,
I think often overlooked, like,
and I talked with founders, and they say,
why do we want to go to to to do now I touch you to markets if you can conquer that, you know that's really that's really amazing yeah.
Though that might be true. The thing is also, that's of course, in the US, you also have localization and then aspect they set the competition for top spots. For instance, in Google search is much higher compared for, for instance, waiting in the Netherlands.
I mean, we have sixty million people aiming for us ranking for some keywords, whereas in the US and the counters open the March larger. So also your skill set some things that has test or increase to review when.
Those sound like real mistakes I think I've heard of them.
So, just trying to ignore the cultural things and, you know, thinking that I personally this regard a lot, because I'm more of a less philosophical approach, I guess, but sometimes stuff does have to be accounted for.
So, let's talk more about the current events and specific question, or used to invest in your into Corona virus.
No, sure thing and actually, we were quite lucky that we raised our funds just prior to, to go with nineteen.
Oh, yeah, that's a nice time for, for closing a fund and the great I really had these discussion internally like, well, what are we going to do?
And the, the point of Corona was really for us to say, okay, let's go aggressively into two markets aggressive in a positive way, or really approach markets.
Lots of companies, of course, might need funding, whether it's be bridge funding or something or something else.
I like just like racing around just be there, build a relationship even if they yeah. Even if they don't besides decide to race, let's let's be there contact them. And for us, it's really worked out.
What work worked out. Well, so we did two or three investments during during the periods and on top of that, you now build great, great pipeline.
That doesn't mean that we're investing in everything. We're definitely a Vicky, a sense that we. Have some thesis where the market will develop as we tend to invest more in digitization of, of of work also indirect effects like,
cyber security or cloud components that's the day to shift to digitization.
But we are definitely open for business.
Great. That's great to hear. And it's good. Good timing there in terms of raising your fund, right? Before recovery network guys at let's move on to the last question of this episode, which is a call to action. What's the one thing that you think the listener should do?
As soon as the episode is over?
We talked a bit about metrics what to think is very important is just to drive down and both are the fundamental drivers of my, my business and also, what are the supporting drivers?
Those metrics just really work it out to sort of a decision tree. And then basically brought your numbers to each of these metrics and then compare rates with, on the other hand, where do you want to go?
And what metrics do we then have to have have to have to show? Then, of course, you can make like, a traditional gap analysis saying, like, okay, so Here's where I am now.
And this this is, where I'm headed, I think, and I think that's then also, every month gives a good overview of, like, are you moving in the right direction or not?
And also you can, from a growth hacking perspective take the matrix focus on dads for Sprint. See, if you can influence it and then basically move on to the next metric and the next metric.
And that's how you, I think, really built growth growth engine. That's something I was really recommends. And another thing of course, if people want to brainstorm about it, they can always reach out.
Sounds good. Yeah, I'll make sure I include the link to your LinkedIn group. In the episode. Of course, as usual, I'll include the link to NYC venture capital and one more thing I'll leave. I recently discovered this Y. C.
a library that has just enormous number of resources those people create content like crazy. Seriously, it doesn't say so definitely.
We're willing to that one as well but if you don't find something that you're looking for, if you have some more specific questions that those articles from Weiss, he don't answer. I leave another link to the office hours.
I'll make it to do the ventures here where I work and there you can actually go out and ask us personally, you know, some, some, very specific questions specifically for your situation.
So, go out, check out this and you'll find some, some, something helpful there and have a good day.